Grimes Const. v. Great American Lloyds

• Decision Date: 09 March 2006
• Docket Number: No. 2-04-335-CV.,2-04-335-CV.
• Citation: 188 S.W.3d 805
• Parties: GRIMES CONSTRUCTION, INC., Appellant, v. GREAT AMERICAN LLOYDS INSURANCE COMPANY, Appellee.
• Court: Texas Court of Appeals

188 S.W.3d 805

GRIMES CONSTRUCTION, INC., Appellant, v. GREAT AMERICAN LLOYDS INSURANCE COMPANY, Appellee.

No. 2-04-335-CV.

Court of Appeals of Texas, Fort Worth.

March 9, 2006.

Appeal from the 96th District Court, Tarrant County, R. Jeff Walker, J.

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Todd A. Haba, Bush & Motes, P.C., Arlington, for Appellant.

Christopher "Kipper" Burke, Miller & Burke, P.C., San Antonio, Richard P. Hogan, Jr. and Jennifer Bruch Hogan, Hogan & Hogan, L.L.P., Houston, for Appellee.

Panel A: LIVINGSTON, DAUPHINOT, and McCOY, JJ.

OPINION

LEE ANN DAUPHINOT, Justice.

This case arises out of a previous dispute between Owen and Karen Cox and Appellants Grimes Construction, Inc. regarding alleged defects in the home that Appellant constructed for the Coxes. Appellant's insurer, Appellee Great American Lloyds Insurance Company, denied that it owed a duty to defend or a duty to indemnify Appellant in the suit or resulting arbitration, and this case ensued. The trial court granted Appellee's motion for summary judgment and denied Appellant's motion for partial summary judgment. Because we hold that Appellee did not owe a duty to defend or a duty to indemnify Appellant and did not violate Article 21.55 of the Texas Insurance Code, we affirm the trial court's judgment.

I. Factual and Procedural Background

Appellant contracted to construct a house for the Coxes in November 1998. Appellee issued a commercial general liability (CGL) policy to Appellant for the construction of the house. Appellant finished working on the house in December 1999 or January 2000. In March 2000, Appellant sued the Coxes, seeking payment under the terms of the contract. The Coxes filed a counterclaim, seeking damages for faulty construction of the residence, failure to complete the residence timely, false representations, and failure to construct the residence in a good and workmanlike manner. Additionally, the Coxes included causes of action for breach of contract, breach of express and implied warranties, fraud, misrepresentation, and negligent misrepresentation. The case proceeded to arbitration, and the Coxes, in their demand for arbitration, continued to allege that Appellant had failed to complete the residence timely, made false representations, and failed to construct the residence in a good and workmanlike manner. They also asserted claims for breach of express and implied warranties, negligence, negligent hiring and supervision, fraud, misrepresentation, negligent misrepresentation, violations of the Texas Deceptive Trade Practices Act (DTPA),¹ and breach of contract and requested attorney's fees. The case settled before the arbitration proceeding was adjudicated. Pursuant to the settlement agreement, Appellant paid the Coxes $52,653.51.

In response to the Cox suit, Appellant filed a claim with Appellee to defend and indemnify it. Appellee denied coverage of the claim and denied its duty to defend or indemnify Appellant. Appellee filed a declaratory judgment action seeking a declaration that it did not owe a duty to pay for the defense of or to indemnify Appellant in the Cox suit and related arbitration. Appellant counterclaimed, seeking a declaration that Appellee did owe a duty to defend and indemnify it and alleging that Appellee had breached a duty of good faith and fair dealing and had violated the Texas Insurance Code. Both parties filed motions for summary judgment. The trial court issued a final judgment granting Appellee's motion and denying Appellant's motion.

In three issues, Appellant argues that the trial court erred by granting Appellee's motion for summary judgment and denying Appellant's motion for summary judgment regarding 1) the duty to defend, 2) the duty to indemnify, and 3) Article 21.55 of the Texas Insurance Code. We disagree.

II. Standard of Review

In a summary judgment case, the issue on appeal is whether the movant met its summary judgment burden by establishing that no genuine issue of material fact exists and that the movant is entitled to judgment as a matter of law.² The burden of proof is on the movant, and all doubts about the existence of a genuine issue of material fact are resolved against the movant.³ Therefore, we must view the evidence and its reasonable inferences in the light most favorable to the nonmovant.⁴

In deciding whether there is a material fact issue precluding summary judgment, all conflicts in the evidence are disregarded and the evidence favorable to the nonmovant is accepted as true.⁵ Evidence that favors the movant's position will not be considered unless it is uncontroverted.⁶

The summary judgment will be affirmed only if the record establishes that the movant has conclusively proved all essential elements of the movant's defense as a matter of law.⁷

When both parties move for summary judgment and the trial court grants one motion and denies the other, the reviewing court should review both parties' summary judgment evidence and determine all questions presented.⁸ The reviewing court should render the judgment that the trial court should have rendered.⁹

III. Legal Analysis

A. Duty to Defend

The duty to defend is determined by the allegations in the underlying pleadings and the language of the insurance policy.¹⁰ This standard is referred to as the "eight corners" rule.¹¹ When we apply the "eight corners" rule, we give the allegations in the pleadings a liberal interpretation in favor of the insured.¹² In other words, "in a 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."¹³ The facts alleged in the pleadings against the insured are presumed to be true when gauging the insurer's duty to defend.¹⁴ However, the court may not read facts into the pleadings, look outside the pleadings, or "imagine factual scenarios which might trigger coverage."¹⁵ A liability policy obligates the insurer to defend the insured against any claim that could potentially be covered, regardless of the claim's merits.¹⁶ A duty to defend any of the claims against an insured requires the insurer to defend the entire suit.¹⁷

In its first issue, Appellant asserts that the trial court erred in granting Appellee's motion for summary judgment and denying Appellant's motion for summary judgment with respect to the duty to defend. Specifically, Appellant argues that a CGL policy covers inadvertent defects, that the "occurrence" and "property damage" definitions have been satisfied, and that there are no exclusions applicable to bar coverage. We disagree that the alleged damage to the Coxes' house was the result of an "occurrence."

1. Occurrence

The insurance policy obligates Appellee to defend and indemnify Appellant for all claims of "property damage" caused by an "occurrence." "Occurrence" is defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." The policy does not define "accident."

Interpretation of insurance policies is governed by the rules of contract interpretation.¹⁸ The words in an insurance policy are given their ordinary meaning unless the policy clearly gives them a different meaning.¹⁹ In addition, the Texas Supreme Court has held that the term accident included "negligent acts of the insured causing damage which is undesigned and unexpected."²⁰ More recently, the Texas Supreme Court in Mid-Century Insurance Co. of Texas v. Lindsey held that two factors are to be considered in determining whether an act or omission constitutes an accident: (i) whether the actor intended to cause damage to others and (ii) the reasonably foreseeable effect of the actor's intended conduct.²¹ With regard to the first factor, effects that the actor did not intend to produce and that he cannot be charged with the design of producing are produced by accidental means.²² On the other hand, intentional actions are generally not accidental and, thus, are not occurrences.²³ With regard to the second factor, effects that are anticipated or foreseeable are generally not accidental.²⁴ As stated, both factors play a role in the determination.²⁵

Here, the demand for arbitration constitutes the "petition" to which the court is required to look to determine if the allegations against the insured were covered by the policy.²⁶ The Coxes' demand for arbitration contains allegations of breach of express and implied warranties, negligence, negligent hiring and supervision, fraud, misrepresentation, negligent misrepresentation, violations of the DTPA, and breach of contract.

a. Negligence

The Coxes claimed that Appellant was negligent in constructing their home. The purported facts that give rise to the alleged actionable conduct, not the legal theories, control in determining the duty to defend.²⁷ Thus, several courts have held that even when the petition asserts theories of negligence, if the factual allegations contained in the petition are based on other claims, such as the contractor's failure to construct the building in accordance with the contract and implied warranties, no occurrence is alleged.²⁸ For example, in Jim Johnson Homes, the court held that artful pleading suggesting that acts were negligent could not overcome the basic facts underlying the claims.²⁹ "The allegation that [the insurer] was negligent [was] simply an embellishment on, and a recharacterization of, the basic breach of contract and fraud claims."³⁰ Likewise, the court in Lamar Homes held that there was no occurrence "in spite of broad negligence allegations" because "the gravamen of the complaint [was] breach of warranty: [the contractor] did not build the ... home in the fashion and to the standard to which [the contractor] represented ... that it would."³¹ In other words, "[t]he use of legal legerdemain or mere characterization of an...