Horton-Texas, Ltd. v. Markel Intern. Ins.

• Decision Date: 26 October 2006
• Docket Number: No. 14-05-00486-CV.,14-05-00486-CV.
• Citation: 300 S.W.3d 773
• Parties: D.R. HORTON—TEXAS, LTD., Appellant, v. MARKEL INTERNATIONAL INSURANCE COMPANY, LTD. and Sphere Drake Insurance, Ltd., Appellees.
• Court: Texas Court of Appeals

300 S.W.3d 773

D.R. HORTON—TEXAS, LTD., Appellant, v. MARKEL INTERNATIONAL INSURANCE COMPANY, LTD. and Sphere Drake Insurance, Ltd., Appellees.

No. 14-05-00486-CV.

Court of Appeals of Texas, Houston (14th Dist.).

October 26, 2006.

Robert B. Gilbreath, Hawkins, Parnell & Thackston, LLP, Dallas, Brandy M. Wingate, for appellant.

Leslie Dean Pickett, Galloway, Johnson, Tompkins, Burr and Smith, Houston, Jacob

Allen DeLeon, Robert Shults, Todd Frederick Newman, Kristi L. Hamilton, for appellee.

Panel consists of Justices FOWLER, EDELMAN, and GUZMAN.

SUBSTITUTE MEMORANDUM OPINION ON REHEARING

EVA M. GUZMAN, Justice.

We withdraw our memorandum opinion of June 29, 2006 and issue this substitute memorandum opinion on rehearing. We overrule the various motions for rehearing filed by appellant D.R. Horton and appellee Sphere Drake Insurance, Ltd.

In this appeal from take-nothing summary judgments granted in favor of appellees, Markel International Insurance Company, Limited¹ ("Markel") and Sphere Drake Insurance, Limited² ("Sphere Drake"), we examine whether appellees had a duty to defend and indemnify appellant, D.R. Horton — Texas, Limited³ ("Horton"), as an additional insured in an underlying lawsuit arising out of the construction and warranty repair of a home. Because Markel satisfied its burden of proof under the "eight corners rule" on all of Horton's claims, except Horton's claims of statutory and common law misrepresentation, we affirm in part, reverse in part the trial court's judgment as to Markel, and remand that portion of the case. Because Sphere Drake failed to meet its burden of proof under the "eight corners rule," we reverse the trial court's summary judgment in favor of Sphere Drake and remand that portion of the case as well.

I. FACTUAL AND PROCEDURAL BACKGROUND

On July 31, 2002, James and Cicely Holmes filed suit against homebuilder Horton,⁴ alleging the home they had purchased from a third party in July 2001 contained latent defects that led to the propagation of toxic mold, rendering the home uninhabitable.⁵ The Holmeses claimed that in October 2001, shortly after moving into the residence, they discovered toxic mold in the house. They further claimed that during the mold remediation process, latent defects were discovered in the construction and design of the home, particularly in connection with the chimney, roof, vent pipes, windows, window frames, and flashing around the roof and chimney. The Holmeses alleged that these defects allowed water to enter the home, and that Horton had made faulty, incomplete and negligent attempts to repair these latent defects.

Horton demanded that Markel and Sphere Drake defend it in the Holmes suit. Sphere Drake had insured independent contractor Rosendo Ramirez from September 16, 1992 through September 16, 1999, and Horton had been named on the policy as an additional insured for certain claims.⁶ Markel insured Ramirez from September 16, 1999 through September 16, 2002,⁷ and Horton was named as an additional insured for claims arising out of Ramirez's work. Although the Holmes petition does not mention Ramirez or any other subcontractor, Horton asserts that Ramirez performed the masonry work for the original construction of the Holmes residence as well as repairs performed in 1999. Horton therefore claims that Ramirez's insurers are required to defend Horton in the Holmes suit.

Markel did not respond to Horton's demand for defense, and Sphere Drake denied coverage on the basis that the damage manifested after its coverage terminated.⁸ After both insurers failed to assume Horton's defense, Horton hired its own defense counsel and settled the case for $50,000.00.

In December 2003, Horton filed suit against Markel and Sphere Drake for reimbursement of the settlement funds and defense costs. Horton stated claims against both insurers for breach of contract, violations of the Texas Insurance Code, and misrepresentation.

On March 11, 2005, Markel filed a traditional motion for summary judgment, asking the court to find that it had no duty to defend or indemnify Horton. Sphere Drake filed a similar motion on April 1, 2005. Horton responded to Markel's motion on April 11, 2005, and pursuant to a Rule 11 agreement, responded to Sphere Drake's motion on April 13, 2005. Although the title of Horton's response to Markel's motion gave no indication that the response was combined with a motion for continuance of the April 18, 2005 hearing on Markel's summary judgment motion, the request was included under the heading "Objections" on the fourth page of the thirty-eight page response. The hearing was not continued, and the trial court granted summary judgments in favor of Markel and Sphere Drake.

II. ISSUES PRESENTED

On appeal, Horton seeks reversal of both summary judgments. Although Horton asserts numerous subpoints, the central issues are whether (a) Markel had a duty to defend and indemnify Horton in the Holmes suit, (b) Sphere Drake had a duty to defend and indemnify Horton in the Holmes suit, (c) the trial court improperly granted Markel summary judgment on Horton's claims of fraud and misrepresentation asserted after Markel moved for summary judgment, and (d) the trial court improperly denied Horton's motion to continue the hearing on Markel's motion for summary judgment.

III. STANDARD OF REVIEW

We review the trial court's grant of summary judgment de novo. Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex.2003). To be entitled to summary judgment, the movant has the burden of showing there are no genuine issues of material fact as to one or more of the essential elements of the plaintiff's cause of action. TEX.R. CIV. P. 166a. In reviewing the record and determining whether a material fact issue precludes summary judgment, evidence favorable to the non-movant will be taken as true, every reasonable inference must be indulged in favor of the non-movant, and any doubts must be resolved in the non-movant's favor. Nixon v. Mr. Prop. Mgmt. Co., Inc., 690 S.W.2d 546, 548-49 (Tex.1985).

IV. ANALYSIS

A. THE MARKEL SUMMARY JUDGMENT

In their motions for summary judgment, Markel and Sphere Drake argued inter alia they had no duty to defend Horton in the underlying suit because the Holmes petition did not allege Ramirez's work caused damage. Because this argument is potentially dispositive, we address it first.

1. The Duty to Defend: the "Eight Corners" Rule

An insurer's duty to defend its insured is determined by the "eight corners" rule, which requires that we compare the allegations in the petition filed against the insured with the coverage afforded by the insurance policy. King v. Dallas Fire Ins. Co., 85 S.W.3d 185, 187 (Tex.2002). If a petition does not allege facts within the scope of coverage, an insurer is not legally required to defend a suit against its insured. Nat'l Union Fire Ins. Co. of Pittsburgh, Pa. v. Merchants Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex.1997) (per curiam). On the other hand, an insurer is obligated to defend a lawsuit if the facts alleged in the pleadings give rise to any claim within the coverage of the policy. Utica Nat'l Ins. Co. of Tex. v. Am. Indem. Co., 141 S.W.3d 198, 201 (Tex.2004). "When applying the eight corners rule, we give the allegations in the petition a liberal interpretation." Merchants Fast Motor Lines, Inc., 939 S.W.2d at 141. The insurer owes a duty to defend if the third-party petition "potentially" states a claim within coverage. See id.

In reviewing the pleadings in light of the insurance policy's provisions, we focus on the petition's factual allegations showing the origin of the damages, and not on the legal theories alleged. Merchants Fast Motor Lines, Inc., 939 S.W.2d at 141. Although we strictly construe the pleadings against the insurer and resolve any doubt in favor of coverage, not every doubt requires resolution of the duty to defend in favor of the insured. We will not read facts into the petition, nor will we look outside of the petition, or imagine factual scenarios which might trigger coverage. Merchants Fast Motor Lines, Inc., 939 S.W.2d at 142. Thus, the duty to defend is not affected by facts ascertained before suit or developed during the process of litigation, or by the ultimate outcome of the suit. See Heyden Newport Chem. Corp. v. S. Gen. Ins. Co., 387 S.W.2d 22, 25 (Tex.1965).

If an insurer has a duty to defend its insured against any claim pleaded in the petition of the underlying suit, then the insurer is required to defend its insured against all claims in that petition. See Stumph v. Dallas Fire Ins. Co., 34 S.W.3d 722, 728 (Tex.App.-Austin 2000, no pet.). Our natural starting point is therefore a review of the coverage afforded by the policy.

a. The Markel Policy

Horton argues it is an additional insured under Ramirez's commercial general liability insurance policy with Markel, and as an additional insured, it is entitled to indemnification and defense in the Holmes lawsuit. The policy, effective from September 16, 2001 to September 16, 2002, specifically lists Horton as an additional insured, "but only with respect to liability arising out of `[Ramirez's] work' for [Horton] by or for [Ramirez]."

b. The Holmes Petition

The factual allegations in the Holmes petition include in pertinent part On or about July 3, 2001, Plaintiffs James and Cicely Holmes purchased a home located at 2330 Pin Hook Ct., Seabrook, Texas, from [prior owners. Prior owners] purchased the property on or about August 17, 2000, from [the original purchasers]. The original purchasers acquired the property on April 20, 1993 from D.R. Horton, which designed and built the home....

In October 2001, shortly after moving into the residence, the Holmes[es] discovered mold in the home. That mold was tested and found to be of highly toxic strain, present in significant concentrations and scattered throughout various locations in the residence. As a result, and [sic] the family...