Gehan Homes, Ltd. v. Employers Mut. Cas.

Decision Date26 October 2004
Docket NumberNo. 05-03-00574-CV.,05-03-00574-CV.
PartiesGEHAN HOMES, LTD., Appellant, v. EMPLOYERS MUTUAL CASUALTY COMPANY and Great American Lloyds Insurance Company, Appellees.
CourtTexas Court of Appeals

Appeal from the 116th Judicial District Court, Dallas County, Carlos Lopez, J Thomas V. Murto, III, and George Edward Crumley, Stradley & Wright, Dallas, for Appellant.

Thomas D. Caudle, Mateer & Shaffer L.L.P., Mark C. Enoch, Glast Phillips & Murray, P.C., Lawrence Fischman, Glast, Phillips & Murray, Dallas, Patrick Smith, Scott Smith, Smith, Smith & Smith, L.L.P., Mesquite, for Appellee.

Before Justices WHITTINGTON, LANG, and LANG-MIERS.

OPINION

Opinion by Justice LANG-MIERS.

Employers Mutual Casualty Company and Great American Lloyds Insurance Company (sometimes collectively referred to as "the insurers") obtained a summary judgment from the trial court holding that they had no duty to defend or indemnify Gehan Homes, LTD. (Gehan) in an underlying lawsuit. We reverse and remand for further proceedings.

BACKGROUND

Gehan is a home builder that purchased commercial general liability (CGL) insurance policies from insurers, including Employers Mutual and Great American. The Employers Mutual policy provided coverage from June 30, 1997 through June 30, 1998, and the Great American policy provided coverage from June 30, 1998 through June 30, 1999.

On May 7, 2001, Gehan's customers, the Larsons, filed suit against Gehan claiming that there were foundation problems with the home they purchased from Gehan.1 The Larsons claimed that the home was designed and constructed by Gehan independently and/or through engineers and independent contractors, and that the home was not as represented, not of proper quality, and was not designed or constructed in a good and workmanlike manner. They also claimed that Gehan was negligent in relying upon the developers' general soil analysis and in failing to obtain an accurate soil analysis upon which to base a foundation design. The Larsons sought damages arising from negligence and malice, breach of contract and warranty, DTPA violations, and fraud. In the alternative, the Larsons asked the court to rescind their purchase of the house. After the Larsons filed suit, the insurers filed a declaratory judgment action against Gehan and asked the court to find that they had no duty to defend or indemnify Gehan against the Larsons' underlying claims.2 Employers Mutual filed both traditional and no-evidence summary judgment motions, and Great American filed a traditional summary judgment motion. The court granted both of the insurers' traditional summary judgment motions, holding that the insurers did not have any duty to defend or indemnify Gehan Homes in the Larsons' case. The court denied Employers Mutual's no-evidence motion.

Gehan contends that the court erred by granting summary judgment because the insurers failed to establish as a matter of law that they did not have a duty to defend and that the court's ruling on the duty to indemnify was premature. We agree.

STANDARD OF REVIEW

We review a grant of summary judgment de novo. Dickey v. Club Corp. of Am., 12 S.W.3d 172, 175 (Tex.App.-Dallas 2000, pet. denied). To prevail on a traditional motion for summary judgment, the movant must show that no genuine issue of material fact exists and that it is entitled to judgment as a matter of law. TEX.R. Civ. P. 166a(c); Southwestern Elec. Power Co. v. Grant, 73 S.W.3d 211, 215 (Tex. 2002). Any doubts about the existence of a genuine issue of material fact are resolved against the movant. Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548-49 (Tex.1985). All evidence and any reasonable inferences must be viewed in the light most favorable to the nonmovant. Id. All evidence favorable to the nonmovant will be taken as true. Southwestern Elec. Power Co., 73 S.W.3d at 215. Evidence favorable to the movant will not be considered unless it is uncontroverted. Great Am. Reserve Ins. Co. v. San Antonio Plumbing Supply Co., 391 S.W.2d 41, 47 (Tex.1965).

DUTY TO DEFEND

The insurer's duty to defend arises when a third party sues the insured on allegations that, if taken as true, potentially state a cause of action within the terms of the policy. Hallman v. Allstate Ins. Co., 114 S.W.3d 656, 659 (Tex.App.-Dallas, 2003, pet.granted). The duty to defend is determined by the allegations in the underlying pleadings and the language of the insurance policy. Nat'l Union Fire Ins. Co. v. Merchants Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex.1997). This standard is referred to as the "eight corners" rule. Id. When we apply the "eight corners" rule, we give the allegations in the petition a liberal interpretation in favor of the insured. Id. The allegations should be considered in light of the policy provisions without reference to their truth or falsity and without reference to what the parties know or believe to be the true facts. See Argonaut Southwest Ins. Co. v. Maupin, 500 S.W.2d 633, 635 (Tex.1973). The facts alleged in the petition against the insured are presumed to be true when gauging the insurer's duty to defend. Heyden Newport Chem. Corp. v. Southern General Ins. Co., 387 S.W.2d 22, 24 (Tex. 1965). The court may not read facts into the pleadings, look outside the pleadings, or "imagine factual scenarios which might trigger coverage." Merchs. Fast Motor Lines, Inc., 939 S.W.2d at 142. A liability policy obligates the insurer to defend the insured against any claim that could potentially be covered, regardless of the claim's merits. Heyden Newport Chem. Corp., 387 S.W.2d at 26. If the pleadings do not state facts sufficient to bring the case clearly within or without the coverage, the general rule is that the insurer is obligated to defend if potentially there is a case under the pleadings within the coverage of the policy. See Merchs. Fast Motor Lines, Inc., 939 S.W.2d at 141. A duty to defend any of the claims against an insured requires the insurer to defend the entire suit. Stumph v. Dallas Fire Ins. Co., 34 S.W.3d 722, 728 (Tex.App.-Austin 2000, no pet.); Pro-Tech Coatings, Inc. v. Union Standard Ins. Co., 897 S.W.2d 885, 892 (Tex.App.-Dallas 1995, no writ).

THE CGL POLICIES

In its first issue, Gehan contends that the trial court erred in granting summary judgment because the insurers failed to prove as a matter of law that the Larsons' pleadings did not allege a claim that could potentially be covered under the CGL policies. We look to the policy to determine whether there was a duty to defend. The insurance policies contain the following language:

We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. We will have the right and duty to defend any "suit" seeking those damages.

The policies further provide that "[the] insurance applies to `bodily injury' and `property damage' only if: (1) the `bodily injury' or `property damage' is caused by an `occurrence' that takes place in the `coverage territory.'" Consequently, to trigger the duty to defend, the Larsons' underlying claim must be for "property damage" or "bodily injury" caused by an "occurrence."

A. OCCURRENCE

Gehan and the insurers disagree on the meaning of "occurrence." In the definitions section of both of the policies, the term "occurrence" is defined as an "accident, including continuous or repeated exposure to substantially the same general harmful conditions." The policies do not define the term "accident," but the Texas Supreme Court has held that an injury is accidental if

"[it is] not the natural and probable consequence of the action or occurrence which produced the injury; or in other words, if the injury could not reasonably be anticipated by [the] insured, or would not ordinarily follow from the action or occurrence which caused the injury."

Mid-Century Ins. Co. v. Lindsey, 997 S.W.2d 153, 155 (Tex.1999) (quoting Republic Nat'l Life Ins. Co. v. Heyward, 536 S.W.2d 549, 557 (Tex.1976)). "[B]oth the actor's intent and the reasonably foreseeable effect of his conduct bear on the determination of whether an occurrence is accidental." Lindsey, 997 S.W.2d at 155. Additionally, it is "the insured's standpoint [that] controls in determining whether there has been an `occurrence' that triggers the duty to defend." King v. Dallas Fire Ins. Co., 85 S.W.3d 185, 188 (Tex. 2002).

Two lines of cases defining the term occurrence have evolved. The first line of cases is derived from the Texas Supreme Court's decision in Maupin, 500 S.W.2d at 633. The Maupin line of cases "pertains to coverage of claims against an insured for damage caused by its alleged intentional torts." Federated Mut. Ins. Co. v. Grapevine Excavation, Inc., 197 F.3d 720, 723 (5th Cir.1999) (emphasis in original). In Maupin, the plaintiff sued for trespass, not negligence, claiming that the insured "intentionally, wrongfully and willfully" entered upon the Meyers' property and inflicted damage by taking dirt, sand, gravel and rock from property when it did not have permission to do so. Maupin, 500 S.W.2d at 636. The defendant admitted it took the materials from the property, but claimed that it believed it had permission to do so from the owner.3 The court held that there was no occurrence because the conduct alleged was intentional. Id.

The second line of cases is derived from the Texas Supreme Court's decision in Massachusetts Bonding & Ins. Co. v. Orkin Exterminating Co., 416 S.W.2d 396 (Tex.1967). In Orkin, the underlying claim was that the insured was negligent when it applied a pesticide to the rice mill's facilities and to the rice itself, thus damaging the rice. The insured paid the judgment against it for negligence and sought reimbursement from the insurer. The policy provided that the insurer would "pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of injury to...

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