Gilbert Tex. Constr. v. London

Decision Date17 December 2010
Docket NumberNo. 08–0246.,08–0246.
Citation54 Tex. Sup. Ct. J. 367,327 S.W.3d 118
PartiesGILBERT TEXAS CONSTRUCTION, L.P., Petitioner,v.UNDERWRITERS AT LLOYD'S LONDON, Respondent.
CourtTexas Supreme Court

OPINION TEXT STARTS HERE

Linda Jene Burgess, Craig T. Enoch, Winstead PC, Lee H. Shidlofsky, Douglas Paul Skelley, Visser Shidlofsky LLP, Austin, Andrew T. McKinney, McKinney & Cooper, L.L.P., Houston, for Petitioner.Glenn Richard Legge, Alexander C. Papandreou, Karen Ann Conticello, Legge Farrow Kimmitt McGrath & Brown, LLP, Houston, for Respondent.Claude Stuart III, Phelps Dunbar, Houston, for Amicus Curiae.Patrick J. Wielinski, for Associated General Contractors of America, American Contractors Ins. Group, Ltd.Micah Ethan Skidmore, for United Policyholders.Timothy Poteet, for Texas Association of Defense Counsel.Justice JOHNSON delivered the opinion of the Court.

We deny Gilbert Texas Construction's motion for rehearing. We withdraw our opinion of June 4, 2010 and substitute the following in its place.

During a Dallas Area Rapid Transit Authority (DART) construction project, unusually heavy rains resulted in water damage to a building adjacent to the construction site. The owner of the building sued DART and its contractors, alleging that construction activities caused the water damage. The building owner sued the general contractor in tort and for breach of contract. In the breach of contract claim, the building owner alleged that the general contractor assumed liability for the damage under its contract with DART. Except for the breach of contract claim, the trial court granted summary judgment for the general contractor on the basis of governmental immunity. The general contractor later settled the breach of contract claim and sought indemnity from its insurers. The excess insurer denied coverage.

We address two issues. The first is whether the contractual liability exclusion in a Commercial General Liability (CGL) policy excludes coverage for property damage when the only basis for liability is that the insured contractually agreed to be responsible for the damage, and if so, whether an exception to the exclusion operates to restore coverage. We hold that the exclusion applies, the exception does not, and there is no coverage. The second issue is whether Gilbert is entitled to recover its settlement payment under an estoppel theory. We hold it is not.

I. BACKGROUND
A. The Underlying Suit

In 1993, DART contracted with Gilbert Texas Construction, L.P., as general contractor, to construct a light rail system. One part of the contract required Gilbert to protect the work site and surrounding property:

10. Protection of Existing Site Conditions

a. The Contractor shall preserve and protect all structures ... on or adjacent to the work site....

b. The Contractor shall protect from damage all existing improvements and utilities (1) at or near the work site and (2) on adjacent property of a third party ... [and] repair any damage to those facilities, including those that are the property of a third party, resulting from failure to comply with the requirements of this contract or failure to exercise reasonable care in performing the work. If the Contractor fails or refuses to repair the damage promptly, [DART] may have the necessary work performed and charge the cost to the Contractor.

During construction, Dallas suffered an unusually heavy rain, and a building adjacent to the construction area was flooded. RT Realty (RTR), the building's owner,1 sued DART, Gilbert, and other persons and entities involved in the construction. RTR alleged various theories of liability, including violations of the Texas Transportation Code and the Texas Water Code, nuisance, and trespass. RTR also claimed it was a third-party beneficiary of the contract between Gilbert and DART and that Gilbert was liable to RTR for breach of that contract.

DART provided insurance for the project through an Owner Controlled Insurance Program. Gilbert's primary coverage was by a CGL policy with Argonaut Insurance Company. Gilbert also had several layered excess coverage policies 2 through Underwriters at Lloyd's London 3 (Underwriters). Argonaut assumed Gilbert's defense and provided a list of approved defense counsel to Gilbert, who selected attorney James Grau to defend it. The original answer Grau filed for Gilbert contained a pleading asserting that Gilbert had sovereign immunity.4

Through its coverage counsel, Underwriters sent a series of reservation of rights letters to Gilbert. The letters generally (1) reviewed the claims made by RTR in each successive petition, (2) noted that under its policy, Underwriters did not have a duty to defend Gilbert and its obligation to indemnify Gilbert did not depend on allegations made in RTR's pleadings but would be determined by the judgment rendered and facts found in the suit, (3) stated that a coverage determination was not possible because no judgment had yet been entered and no fact finding accomplished, and (4) referenced various policy provisions that might preclude coverage for the damages being sought from Gilbert. In addition, the letters reserved Underwriters' rights to deny coverage under the policies and noted the potential conflict of interest between Gilbert and Underwriters because of Underwriters' position that damages claimed by RTR might not be covered. Underwriters' policy included a provision allowing Underwriters to associate with Gilbert in defense of claims.

Other defendants also responded to RTR's suit, in part, by claiming they had governmental immunity. The defendants moved for summary judgment on the basis of immunity. The trial court granted the motions for summary judgment except for RTR's claims against Gilbert for breach of contract.

A few weeks after the trial court granted partial summary judgment to Gilbert, Underwriters sent another reservation of rights letter. In that letter, Underwriters, for the first time, took the specific position that RTR's breach of contract claim was not covered because Underwriters' policy excluded coverage for contractual liability. Gilbert settled RTR's breach of contract claim for $6.175 million. Underwriters denied coverage.

B. The Coverage Suit

Gilbert sued Underwriters for breach of contract and Insurance Code violations, also urging that Underwriters waived its right to deny coverage and was estopped to deny coverage. Both parties moved for summary judgment on all issues. The trial court granted Gilbert's motion as to coverage and granted Underwriters' motion as to Gilbert's statutory, waiver, and estoppel claims.

Underwriters and Gilbert both appealed. The court of appeals reversed and rendered judgment for Underwriters, holding that the breach of contract claim (1) fell within the policy's contractual liability exclusion and (2) was not excepted from the exclusion. 245 S.W.3d 29, 34–35 (Tex.App.-Dallas 2007, pet. granted). It additionally held that Underwriters had not waived its policy defenses and was not estopped from raising the defense of non-coverage because Underwriters had not assumed Gilbert's defense. Id. at 37.

In this Court, Gilbert asserts that (1) the contractual liability exclusion does not apply because Gilbert's liability arises from its own breach of contract and not from another's liability that Gilbert assumed; (2) even if the exclusion applies, an exception to the exclusion brings the breach of contract claim back into coverage because Gilbert would have been liable to RTR in the absence of its contract with DART; and (3) in the alternative, Underwriters asserted control over Gilbert's defense and prejudiced Gilbert, so under an estoppel theory Gilbert should be awarded damages for the amount it paid to settle RTR's lawsuit.

We agree with the court of appeals: the contractual exclusion applies to the breach of contract claim and the exception for liability the insured would have absent its contract is inapplicable. Further, we determine that Gilbert was not prejudiced by Underwriters' actions and Underwriters is not required to pay damages to Gilbert under an estoppel theory.5

II. DISCUSSION
A. Standard of Review

The parties do not dispute the applicable burdens of proof. Initially, the insured has the burden of establishing coverage under the terms of the policy. Ulico Cas. Co. v. Allied Pilots Ass'n, 262 S.W.3d 773, 782 (Tex.2008). If the insured proves coverage, then to avoid liability the insurer must prove the loss is within an exclusion. Id. If the insurer proves that an exclusion applies, the burden shifts back to the insured to show that an exception to the exclusion brings the claim back within coverage. Comsys Info. Tech. Servs., Inc. v. Twin City Fire Ins. Co., 130 S.W.3d 181, 193 (Tex.App.-Houston [14th Dist.] 2003, pet. denied); see also Century Sur. Co. v. Hardscape Constr. Specialties, Inc., 578 F.3d 262, 265 (5th Cir.2009).

When both sides move for summary judgment, as they did here, and the trial court grants one motion and denies the other, reviewing courts consider both sides' summary-judgment evidence, determine all questions presented, and render the judgment the trial court should have rendered. Embrey v. Royal Ins. Co. of Am., 22 S.W.3d 414, 415–16 (Tex.2000).

B. Jurisdiction

As a preliminary matter, Underwriters argues that we lack jurisdiction. Gilbert contends, in part, that we have jurisdiction because the court of appeals' opinion conflicts with opinions of other courts of appeals on a question of law material to the decision of the case. See Tex. Gov't Code § 22.001(a)(2). We agree with Gilbert. The court of appeals' decision is contrary to a decision of the Fourteenth Court of Appeals that held the contractual liability exclusion is limited to liability assumed for conduct of a third party, such as in an indemnity or hold-harmless agreement. See Lennar Corp. v. Great Am. Ins. Co., 200 S.W.3d 651, 693 (Tex.App.-Houston [14th Dist.] 2006, pet. denied). Here, the court of appeals...

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