Gore Design Completions v. Hartford Fire Ins. Co.

• Decision Date: 04 August 2008
• Docket Number: No. 08-50042 Summary Calendar.,08-50042 Summary Calendar.
• Parties: GORE DESIGN COMPLETIONS, LTD., Plaintiff-Appellant, v. HARTFORD FIRE INS. CO., Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

538 F.3d 365

GORE DESIGN COMPLETIONS, LTD., Plaintiff-Appellant, v. HARTFORD FIRE INS. CO., Defendant-Appellee.

No. 08-50042 Summary Calendar.

United States Court of Appeals, Fifth Circuit.

August 4, 2008.

Steven Dominic Sanfelippo, Michael Ross Cunningham, Rose Walker, Dallas, TX, for Plaintiff-Appellant.

Marcie Lynn Schout, James H. Moody, III, Quilling, Selander, Cummiskey & Lownds, Dallas, TX, Levon G. Hovnatanian, Martin, Disiere, Jefferson & Wisdom, Houston, TX, for Defendant-Appellee.

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

Before JOLLY, HIGGINBOTHAM and HAYNES, Circuit Judges.

HAYNES, Circuit Judge:

Once again, we are faced with the seemingly simple task of applying the Texas "eight corners" rule to determine whether an insurance company owes a duty to defend an underlying liability lawsuit. Because we conclude that the statement of claim in the liability case asserted a claim that could fall within the coverage of the Hartford policy and is not clearly excluded by it, we reverse the summary judgment and remand to the district court.

I. Factual Background

Hartford issued a commercial general liability policy to BaySys Technologies (the "Policy") containing the following "additional insured" coverage:

Any person or organization with whom you agreed, because of a written contract or agreement or permit, to provide insurance such as is afforded under this Business Liability Coverage Form, but only with respect to your operations, "your work" or facilities owned or used by you.

Hartford has conceded that Appellant Gore Design Completions, Ltd. is an additional insured under the Policy.¹

Gore entered into an agreement with Orient² to perform work on a Boeing 737 Business Jet (the "Aircraft"). Gore alleges that it subcontracted the installation and engineering of an in-flight entertainment/cabin management system (IFE/CMS) to BaySys which, in turn, subcontracted the work to Ron Orvis d/b/a AeroTask.³ During the installation of the IFE/CMS, Gore alleges that AeroTask miswired a component, damaging the Aircraft.

Orient sued Gore and AeroTask, but not BaySys, and the case went to arbitration. In Orient's first amended statement of the claim ("Statement of Claim"), the paragraph defining Gore stated: "At all times, AeroTask and BaySys were agents, partner[s], joint venturer[s], or otherwise acting on behalf of Gore, and their actions can be imputed to Gore."⁴

The Statement of Claim describes the agreement between Orient and Gore. It then states: "In order to complete the work under the Agreement, Gore employed several contractors including AeroTask and BaySys .... [U]nder the terms of the contract, Gore adopted all such contractors and subcontractors as its agents."

The Statement of Claim describes the allegedly negligent conduct to include: "Defendants improperly joined the Aircraft's electrical power panels .... In addition to improperly joining the AC and DC electrical systems, Defendants failed to properly supervise or inspect the work performed on the Aircraft's electrical system." Orient claimed that the Aircraft was grounded as a result of this conduct and that "[t]hese acts resulted in substantial physical damage to the Aircraft's electrical system and to a vast array of electrical equipment installed on the Aircraft." They accused Gore of negligence, gross negligence, negligent hiring and negligent supervision, as well as breaches of warranty, bailment damages and conversion.

Gore tendered defense of the arbitration action to Hartford under the Policy. Hartford declined to defend, alleging that the Statement of Claim did not set forth a claim within the Policy's coverage. Gore then filed this declaratory judgment action, and Hartford moved for summary judgment. Gore moved for partial summary judgment on Hartford's duty to defend it in the arbitration.⁵ The district court concluded that the Statement of Claim did not allege a claim within the Policy coverage and, therefore, Hartford owed no duty to defend. As a result, it did not reach the issue of whether any of the Policy exclusions applied. The district court also concluded that, because there was no duty to defend, there was also no duty to indemnify.⁶ This appeal followed.

II. Standard of Review

We review a grant of summary judgment de novo. Allstate Ins. Co. v. Disability Services of the Southwest, Inc., 400 F.3d 260, 262-63 (5th Cir.2005). Summary judgment is proper when the pleadings and evidence on file "show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Celotex v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (citations omitted).

III. Discussion

A. The Texas "Eight Corners" Rule

The parties do not dispute that Texas law applies to this diversity lawsuit. In Texas, "[t]he eight-corners rule provides that when an insured is sued by a third party, the liability insurer is to determine its duty to defend solely from terms of the policy and the pleadings of the third-party claimant. Resort to evidence outside the four corners of these two documents is generally prohibited." GuideOne Elite Ins. Co. v. Fielder Rd. Baptist Church, 197 S.W.3d 305, 307 (Tex.2006). The duty to defend does not depend upon the truth or falsity of the allegations: "A plaintiff's factual allegations that potentially support a covered claim is [sic] all that is needed to invoke the insurer's duty to defend." Id. at 310 (citing Heyden Newport Chem. Corp. v. S. Gen. Ins. Co., 387 S.W.2d 22, 26 (Tex.1965)).

The rule is very favorable to insureds because doubts are resolved in the insured's favor:

Where the complaint does not state facts sufficient to clearly bring the case within or without the coverage, the general rule is that the insurer is obligated to defend if there is, potentially, a case under the complaint within the coverage of the policy. Stated differently, in case 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 the insured's favor.

Nat'l Union Fire Ins. Co. v. Merchs. Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex.1997) (citations omitted) (holding that, even under a liberal construction, the allegations in that petition did not fall within any potential coverage); see also King v. Dallas Fire Ins. Co., 85 S.W.3d 185, 187 (Tex.2002) ("[W]e resolve all doubts regarding the duty to defend in favor of the duty.") When in doubt, defend.

Allegations are read liberally in favor of the insured. "Courts may not, however, (1) read facts into the pleadings, (2) look outside the pleadings, or (3) imagine factual scenarios which might trigger coverage." Guar. Nat'l Ins. Co. v. Azrock Indus., 211 F.3d 239, 243 (5th Cir.2000). Yet "we may draw inferences from the petition that may lead to a finding of coverage." Gen. Star Indem. Co. v. Gulf Coast Marine Assocs., 252 S.W.3d 450, 456 (Tex.App.—Houston [14th Dist.] 2008, pet. denied). It is the factual allegations, not the legal theories, that control. Fed. Ins. Co. v. Ace Prop. & Cas. Co., 429 F.3d 120, 125 (5th Cir.2005) (citing Nat'l Union Fire Ins. Co., 939 S.W.2d at 141).

B. Orient's Allegations

While not a model of clarity, the Statement of Claim in this case clearly references BaySys, contends that BaySys is Gore's agent and seeks to hold Gore responsible for its alleged negligence in hiring the wrong people for the job. Under the Policy, Gore is an additional insured with respect to BaySys's "operations" or "work." "Your work" is defined in the Policy as "work or operations performed by you or on your behalf." "Your" refers to BaySys. "Operations" is not defined in the Policy. Thus, if the Statement of Claim alleges liability against Gore "with respect to" BaySys's operations or work performed by or on its behalf, then the Policy covers Gore, subject to certain Policy exclusions discussed below.

Here the Statement of Claim clearly implicates BaySys's work by stating that BaySys was employed by Gore and acted as its agent. By making that statement in the section defining "Gore," the Statement of Claim could be read to include BaySys in the allegations against Gore. Although it could also be read another way, where there is doubt, there is a duty to defend. Hochheim Prairie Cas. Ins. Co. v. Appleby, 255 S.W.3d 146 (Tex. App.—San Antonio 2008), pet filed. "[A]llegations [of the underlying petition] are given a liberal interpretation, and any doubts regarding whether the allegations trigger a defense are resolved in favor of the insured." Id. at 150 (citing Heyden Newport Chem. Corp., 387 S.W.2d at 26).

This case is similar to a case decided by the Dallas Court of Appeals. Global Sun Pools, Inc. v. Burlington Ins. Co., No. 05-03-00765-CV, 2004 WL 878283, 2004 Tex. App. LEXIS 7552 (Tex.App.—Dallas Aug.23, 2004, no pet.). In that case, Global built a pool for the Reeds. They sued, alleging that Global sent "its builders to construct the pool and deck" and that, as a result of faulty workmanship, Mrs. Reed was injured when the deck railing collapsed. Id. 2004 WL 878283 at *1, 2004 Tex.App. LEXIS 7552 at *2. The actual builder of the pool, Paul Simmons, was not named in the petition. He had a policy of insurance naming Global as an additional insured and listing his business as installing pools. The court held that, construing the term "its builders" liberally, the petition stated a claim that was potentially within Simmons' policy coverage, although it did not name Simmons. Id. 2004 WL 878283 at *2, 2004 Tex.App. LEXIS 7552 at *6. Accordingly, the court found that the insurance company had a duty to defend Global.

Similarly, our court construed vague allegations to support a conclusion that the defendant could be his employer's permissive user under the employer's automobile...