Gregg & Valby, L.L.P. v. Great American Ins. Co.

• Decision Date: 08 January 2004
• Docket Number: No. CIV. H-02-2873.,CIV. H-02-2873.
• Citation: 316 F.Supp.2d 505
• Parties: GREGG & VALBY, L.L.P., Plaintiff, v. GREAT AMERICAN INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Southern District of Texas

316 F.Supp.2d 505

GREGG & VALBY, L.L.P., Plaintiff, v. GREAT AMERICAN INSURANCE COMPANY, Defendant.

No. CIV. H-02-2873.

United States District Court, S.D. Texas, Houston Division.

January 8, 2004.

Diana Elizabeth Marshall, The Marshall Law Firm, Houston, TX, for Gregg & Valby L L P, plaintiff.

Beth D Bradley, Thompson Coe et al, Dallas, TX, for Great American Insurance Company, defendant.

ORDER ADOPTING MAGISTRATE JUDGE'S MEMORANDUM AND RECOMMENDATION

LAKE, District Judge.

The Court has reviewed the Magistrate Judge's Memorandum and Recommendation and the objections and response thereto and is of the opinion that said Memorandum and Recommendation should be adopted by this Court.

It is, therefore, ADJUDGED that the Magistrate Judge's Memorandum and Recommendation is hereby ADOPTED by this Court.

MEMORANDUM AND RECOMMENDATION

JOHNSON, United States Magistrate Judge.

Pending before the court¹ is Defendant's Motion for Summary Judgment (Docket Entry No. 21), Plaintiff's Cross-Motion for Summary Judgment (Docket Entry No. 25), and Defendant's Motion to Strike Plaintiff's Summary Judgment Evidence (Docket Entry No. 33). The court has considered the motions, all relevant filings, and the applicable law. For the reasons set forth below, the court RECOMMENDS that Defendant's Motion for Summary Judgment be GRANTED, Plaintiff's Motion for Summary Judgment be DENIED, and Defendant's Motion to Strike Summary Judgment Evidence be DENIED.

I. Case Background

This is an insurance coverage dispute. Beginning in June 1997, Plaintiff purchased legal professional liability insurance coverage from Defendant and renewed such coverage on an annual basis.² In June 1999, Plaintiff renewed the previous year's policy, and was issued a new policy ("Policy") that was effective from June 28, 1999, through June 28, 2000.³ This Policy, like its predecessors, required Defendant to pay all damages and claim expenses arising out of covered claims made against Plaintiff during the relevant policy period.⁴

On January 10, 2000, two class action lawsuits were filed in which Plaintiff was named a party defendant, Aven, et al. v Emerald Funding Co. and Gregg & Valby, L.L.P. ("Aven") and O'Sullivan, et al. v. Countrywide Home Loans, Inc. and Gregg & Valby ("O'Sullivan") (also referred to herein collectively as the "underlying suits").⁵ In both of the underlying suits, home purchasers alleged that the settlement papers prepared in conjunction with their real estate closings misrepresented the amount of attorney's fees paid to Plaintiff.⁶ On January 24, 2000, Plaintiff notified Defendant in writing of the two suits, requesting insurance coverage and the provision of a defense in the litigation.⁷ On March 20, 2000, Defendant denied Plaintiff's request, concluding that the claims fell outside the coverage provided by the Policy.⁸ As a result, Plaintiff utilized its own funds and provided its own defense in both suits.⁹ Ultimately, Plaintiff was dismissed as a party from one of the lawsuits and settled in the other.¹⁰

On June 20, 2002, Plaintiff initiated this action in state court, seeking construction of the Policy and a declaration that Defendant had a duty to defend and indemnify it in the underlying suits.¹¹ Defendant properly removed the action to federal court on the basis of diversity jurisdiction.¹² Plaintiff filed its first amended complaint on April 29, 2003, asserting that Defendant had breached its duties to defend and indemnify under the Policy, breached the existing insurance contract, and violated certain provisions of the Texas Insurance Code.¹³ Defendant moved for summary judgment on June 27, 2003, maintaining it had no duty to defend or indemnify and that Plaintiff's extra-contractual claims under the Texas Insurance Code were barred either by the applicable statute of limitations or otherwise precluded as a matter of law.¹⁴ Shortly thereafter, Plaintiff filed a cross-motion for summary judgment, specifying in detail how the Policy covered the claims from the underlying suits.¹⁵ Both motions are now before the court.

II. Summary Judgment Standard

The standards for summary judgment are well established. Summary judgment is warranted only when the evidence before the court presents no genuine dispute regarding any material fact and the moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The movant must inform the court of the basis for the summary judgment motion by identifying relevant excerpts from pleadings, depositions, answers to interrogatories, admissions, and affidavits that demonstrate the absence of genuine issues of material fact. FED. R. CIV. P. 56(c); Celotex Corp., 477 U.S. at 323, 106 S.Ct. 2548; Topalian v. Ehrman, 954 F.2d 1125, 1131 (5th Cir.1992). A material fact is one identified by applicable substantive law as critical to the outcome of the suit. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). To be genuine, the dispute regarding a material fact must be supported by evidence such that a reasonable jury could resolve the issue in favor of either party. Id. at 250, 106 S.Ct. 2505.

If the moving party meets its burden, the nonmoving party must then go beyond the pleadings and produce competent evidence which establishes each of the challenged elements of the case, demonstrating that genuine issues of material fact do exist which must be resolved at trial. Celotex, 477 U.S. at 324, 106 S.Ct. 2548. The nonmoving party, however, must show more than "some metaphysical doubt as to the material facts." Meinecke v. H & R Block of Houston, 66 F.3d 77, 81 (5th Cir.1995). Mere conclusory allegations, unsubstantiated assertions, or unsupported speculation will not carry this burden. Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir.1994).

When considering the evidence, the court resolves all doubts, and draws all reasonable inferences, in favor of the nonmoving party. Evans v. City of Houston, 246 F.3d 344, 348 (5th Cir.2001). Where the record, taken as a whole, indicates that no reasonable jury could return a verdict for the nonmoving party, no genuine issue for trial exists, and summary judgment is a proper means of disposing of the issue. Washington v. Allstate Ins. Co., 901 F.2d 1281, 1286 (5th Cir.1990).

III. Applicable Law

As this case is in federal court under diversity jurisdiction, state law governs substantive matters. Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). Because Texas is the forum state in this matter, the court applies its choice of law rules and substantive law. See TEX. INS. CODE ANN. art. 21.42 (West 1998); Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); Guaranty Nat'l Ins. Co. v. Azrock Indus. Inc., 211 F.3d 239, 243 (5th Cir.2000).

A. Burden of Proof and Contract Interpretation

In general, the insured bears the initial burden of establishing that there is coverage under an applicable insurance policy, while it is the insurer's burden to prove the applicability of an exclusion permitting it to deny coverage. Venture Encoding Serv., Inc. v. Atl. Mut. Ins. Co., 107 S.W.3d 729, 733 (Tex.App.-Fort Worth 2003).

The construction of an insurance policy, like other written contracts, is a question of law to be determined by the court. State Farm Life Ins. Co. v. Beaston, 907 S.W.2d 430, 433 (Tex.1995); Coker v. Coker, 650 S.W.2d 391, 393-94 (Tex.1983). Under Texas law, insurance policies are subject to the general rules of interpretation and construction applicable to contracts. Progressive County Mut. Ins. Co. v. Sink, 107 S.W.3d 547, 551 (Tex.2003); Guaranty Nat'l, 211 F.3d at 243. In construing the terms of a contract, the court's primary purpose is always to ascertain the true intent of the parties as expressed in the written instrument. Mid-Century Ins. Co. v. Lindsey, 997 S.W.2d 153, 158 (Tex.1999); Nat'l Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex.1995); Beaston, 907 S.W.2d at 433. To this end, the court reads all provisions within the contract as a whole and gives effect to each term so that no part of the agreement is left without meaning. Balandran v. Safeco Ins. Co. of Am., 972 S.W.2d 738, 741 (Tex.1998); Beaston, 907 S.W.2d at 433. Terms in contracts are given their plain, ordinary, and generally accepted meaning unless the contract itself shows that particular definitions are used to replace that meaning. W. Reserve Life Ins. v. Meadows, 152 Tex. 559, 261 S.W.2d 554, 557 (1953); Bituminous Cas. Corp. v. Maxey, 110 S.W.3d 203, 208-09 (Tex.App.-Houston [1st Dist.] 2003, pet. denied).

When a contract as worded can be given "a definite or certain legal meaning," then it is unambiguous as a matter of law and the court enforces it as written. Nat'l Union, 907 S.W.2d at 520. If, however, the policy is susceptible to more than one reasonable interpretation, the court must resolve the ambiguity in favor of the insured. Progressive County, 107 S.W.3d at 551 (quoting Grain Dealers Mut. Ins. Co. v. McKee, 943 S.W.2d 455, 458 (Tex.1997)). Whether an ambiguity exists in the language of an insurance contract is a question of law for the court to determine. Kelley-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462, 464 (Tex.1998). The court will not find a contract ambiguous, however, merely because the parties advance conflicting interpretations. Id. at 465.

B. Duty to Defend

Under the "eight-corners" or "complaint allegation" rule, an insurer's duty to defend its insured arises if the insured is sued and the complaint alleges facts that potentially support claims for which there is coverage. Nat'l Union Fire Ins. Co. v. Merchs. Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex.1997). The insurer must compare the four corners of the complaint with the four corners of the insurance policy to determine if the underlying allegations...