Indian Harbor Ins. Co. v. Valley Forge Ins. Group

• Decision Date: 11 July 2008
• Docket Number: No. 06-20707.,06-20707.
• Citation: 535 F.3d 359
• Parties: INDIAN HARBOR INSURANCE CO., Plaintiff-Appellant, v. VALLEY FORGE INSURANCE GROUP; Liberty Mutual Insurance Co., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

535 F.3d 359

INDIAN HARBOR INSURANCE CO., Plaintiff-Appellant, v. VALLEY FORGE INSURANCE GROUP; Liberty Mutual Insurance Co., Defendants-Appellees.

No. 06-20707.

United States Court of Appeals, Fifth Circuit.

July 11, 2008.

Gary Neal Schumann, Savrick, Schumann, Johnson, McGarr, Kaminski & Shirley, Austin, TX, Camille Johnson (argued), Savrick, Schumann, Johnson, McGarr, Kaminski & Shirley, Dallas, TX, for Plaintiff-Appellant.

John B. Wallace (argued), Charles W. Lyman, Lyman, Twining, Weiberg & Ferrell PC, Houston, TX, for Valley Forge Ins. Group.

Douglas T. Gosda, Gregory Schlak, Charles Creighton Carr, Manning, Gosda & Arredondo, Houston, TX, for Liberty Mut. Ins.

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

Before JOLLY, CLEMENT and OWEN, Circuit Judges.

PER CURIAM:

Indian Harbor Insurance Company (Indian Harbor or appellant) sued Valley Forge Insurance Group (Valley Forge) and Liberty Mutual Insurance Group (Liberty Mutual) (collectively, appellees) to recover attorneys fees and settlement costs incurred in defending certain insureds in an underlying lawsuit brought by El Naggar Fine Art Furniture, Inc. (El Naggar). The district court granted summary judgment in favor of Valley Forge and Liberty Mutual. We affirm.

I

El Naggar hired Traxel Construction, Inc. (Traxel) as the general contractor for the construction of a building on El Naggar's property. Traxel hired American Steel Building Company (American Steel) to erect a prefabricated steel building at the site. American Steel hired Arrow Trucking to deliver the steel for the building to the job site. Separately, Traxel hired Coastal Paving, Inc. (Coastal) to construct the concrete slab for the building.

El Naggar sued Traxel, American Steel, Arrow Trucking, and Coastal, contending that the concrete slab was defective and caused significant damage to the building. El Naggar asserted that Arrow Trucking drove a truck onto the slab before the slab was properly cured, which caused it to crack. Further, El Naggar contended that American Steel instructed Arrow Trucking to prematurely drive onto the slab. El Naggar also asserted that Traxel did not properly supervise the project or the slab and that Coastal did not properly protect the slab.

Indian Harbor insured Coastal under a general liability policy. It provided Coastal a defense and paid for the settlement of El Naggar's claims against Coastal on behalf of Coastal. Indian Harbor also shared in the defense of Traxel, which Indian Harbor considered an additional insured under its policy covering Coastal. Valley Forge insured American Steel and Liberty Mutual insured Arrow Trucking— both under business automobile insurance policies. Under these policies, any party that is liable for the conduct of the named insured is also covered as an insured, but only to the extent of that liability.

Indian Harbor sued appellees (the other two insurance companies) to recover: (1) the attorneys fees and costs it paid to defend its insureds, Coastal and Traxel, in the underlying suit brought by El Naggar; and (2) the amount it paid to settle the suit against Coastal. Indian Harbor asserts that Traxel and Coastal qualified as insureds—and consequentially were owed a duty of defense—under the policies issued by Valley Forge to American Steel and by Liberty Mutual to Arrow Trucking because El Naggar's complaint included facts sufficient to support a claim that Coastal and Traxel were vicariously liable for the conduct of American Steel and Arrow Trucking. Valley Forge and Liberty Mutual counterclaimed for a declaratory judgment that they owed Indian Harbor nothing.

Indian Harbor moved for partial summary judgment. Valley Forge and Liberty Mutual filed cross-motions for summary judgment. The district court referred the matter to a magistrate judge, who issued a recommendation. All parties filed responses. The district court adopted the magistrate's recommendation, denied Indian Harbor's motion, granted Valley Forge's and Liberty Mutual's motions, and entered final judgment in favor of Valley Forge and Liberty Mutual.

Indian Harbor appealed, arguing that the district court misapplied Texas's "eight corners" doctrine for interpreting insurance contracts in this context because, though the court properly considered El Naggar's complaint and the Valley Forge and Liberty Mutual policies, it also improperly considered and relied upon Indian Harbor's policy with Traxel to determine coverage under the Valley Forge and Liberty Mutual policies. Appellees argue that, despite the error by the district court, summary judgment is still warranted because under a proper application of the "eight corners" doctrine, neither Traxel nor Coastal are insureds under appellees' policies.

II

We review a district court's grant of summary judgment de novo, applying the same standard as the trial court.¹ Summary judgment is appropriate when, viewing the evidence in the light most favorable to the nonmoving party, the record reflects that no genuine issue of any material fact exists, and the moving party is entitled to judgment as a matter of law.² To survive a motion for summary judgment, the nonmovant must come forward with specific facts showing that there is a genuine issue of material fact.³

We apply Texas law in this diversity action. Under Texas law, "[a]n insurer's duty to defend is determined solely by the allegations in the pleadings and the language of the insurance policy."⁴ This is known as the "eight corners" doctrine— the four corners of the policy plus the four corners of the pleading are considered together.⁵ To create a duty to defend, the underlying pleadings must "allege facts within the scope of coverage."⁶ Accordingly, the duty to defend is determined by the facts alleged, not the legal theories asserted.⁷ Further, courts must "resolve all doubts regarding the duty to defend in favor of the duty."⁸ "When an insurer has a duty to defend, even where `a claim falls partially within and partially outside of a coverage period, the insurer's duty is to provide its insured with a complete defense.'"⁹

A

On appeal, Indian Harbor argues that the district court misapplied the "eight corners" doctrine. We agree. Liberty Mutual also explicitly concedes this point in its brief.

Whether the Valley Forge and Liberty Mutual policies covered Traxel and Coastal hinges on the language in those policies, which identically define "insured" to include "[a]nyone liable for the conduct of an insured described above[,] but only to the extent of that liability." This definition creates insurance coverage for anyone who is vicariously liable for the conduct of American Steel or Arrow Trucking under their respective policies. Therefore, applying the "eight corners" doctrine, the district court should have determined whether the El Naggar complaint pled facts alleging that either Traxel or Coastal, or both, were vicariously liable for the conduct of American Steel or Arrow Trucking, such that Traxel or Coastal would qualify as "insured" under either policy.

The district court erred by only considering whether Coastal, but not Traxel, was alleged to have been held vicariously liable for the actions of American Steel or Arrow Trucking based on the facts pled in the El Naggar complaint. The district court only considered Coastal's liability because it viewed Traxel's liability as an "additional insured" as derivative of Coastal's potential liability. Under the "eight corners" doctrine, the district court should have considered the allegations against Traxel in El Naggar's underlying complaint and appellees' policies.

Appellees contend that summary judgment is still warranted under a proper "eight corners" analysis. Indian Harbor argues that appellees cannot defend the district court's judgment on that ground because appellees' arguments constitute a cross-appeal. Indian Harbor requests remand. However, because appellees are only seeking to preserve the judgment, and not to change it, appellees' arguments are permissible.¹⁰ Accordingly, we consider appellees arguments for affirming the district court on alternative grounds.

B

The question is whether appellees had a duty to defend and insure Traxel or Coastal under the policies issued by appellees to American Steel and Arrow Trucking. If they had a duty to defend and insure, then appellees must indemnify Indian Harbor for defending Traxel or Coastal against El Naggar's lawsuit and for settling the claims in that lawsuit. To answer this question, we examine whether, under a proper application of the "eight corners" doctrine, the El Naggar complaint pled facts alleging that Traxel or Coastal was vicariously liable for the conduct of American Steel or Arrow Trucking so that Traxel and Costal qualified as insureds under appellees' policies. Indian...