Indian Harbor Ins. Co. v. KB Lone Star, Inc.

• Decision Date: 04 September 2012
• Docket Number: CIVIL ACTION H-11-CV-1846
• Court: U.S. District Court — Southern District of Texas
• Parties: INDIAN HARBOR INSURANCE COMPANY, Plaintiff, v. KB LONE STAR, INC. f/k/a LONE STAR, L.P. f/k/a KAUFMAN & BROAD LONE STAR, L.P., Defendant.

INDIAN HARBOR INSURANCE COMPANY, Plaintiff, v. KB LONE STAR, INC. f/k/a LONE

STAR, L.P. f/k/a KAUFMAN & BROAD

LONE STAR, L.P., Defendant.

CIVIL ACTION H-11-CV-1846

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION

Date: September 4, 2012

OPINION AND ORDER OF PARTIAL SUMMARY JUDGMENT

The above referenced declaratory judgment action seeks a determination of Plaintiff Indian Harbor Insurance Company's ("Indian Harbor's") rights, status, and obligations regarding defense and indemnification in two underlying lawsuits for purported "Additional Insured" Defendants KB Home Lone Star, Inc., KB Home Lone Star L.P., KB Lone Star, Inc., Lone Star, L.P., and Kaufman & Broad Lone Star, L.P. (collectively, "KB")¹ under a liability insurance policy ("the policy")² issued to their subcontractor, Innovative Concrete Construction ("Innovative"). Pending before the Court are cross motions for summary judgment filed by Plaintiff Indian Harbor (instrument #11) and KB (#27), and KB's motion for summary judgment regarding application of the TexasInsurance Code § 542.051-.061 (#42). The last motion becomes ripe only if the Court, in ruling on the cross motions for summary judgment, determines that Indian Harbor owed KB a duty of defense and indemnification in the underlying suits.

Also pending is Indian Harbor's motion for more definite statement (#51) regarding KB's counterclaim (#40). Because on May 8, 2012 KB filed an amended counterclaim (#56) and Indian Harbor has not contested the adequacy of the amended pleading, the Court finds that the motion for more definite statement (#51) is moot.

After careful review of the pleadings and their attachments, the insurance policy in dispute, the briefs, and the applicable law, for the reasons indicated below, the Court concludes that Indian Harbor's motion for summary judgment should be granted as to the duty to defend but denied as to the duty to indemnify. Until the latter issue is resolved, KB's motion for summary judgment regarding application of the Texas Insurance Code § 542.051-.061 (#42) is not ripe for decision.

Standard of Review

Summary judgment is proper when "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). The movant has the burden to demonstrate that no genuine issue of material fact exists and that it is entitled to judgmentas a matter of law. Celotex Corp. v. Catrett, 317, 323 (1986). The substantive law governing the claims identifies the essential elements and thus indicates which facts are material. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

Where the non-movant bears the burden of proof at trial, the movant need only point to the absence of evidence to support an essential element of the non-movant's case; the movant does not have to support its motion with evidence negating the non-movant's case. Little v. Liquid Air Corp. , 37 F.3d 1069, 1075 (5th Cir. 1994).

If the movant succeeds, the non-movant must come forward with evidence such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc. , 477 U.S. at 248. The non-movant "must come forward with 'specific facts showing there is a genuine issue for trial.'" Matsushita Elec. Co. v. Zenith Radio Corp. , 475 U.S. 574, 587 (1986). "A factual dispute is deemed 'genuine' if a reasonable juror could return a verdict for the nonmovant, and a fact is considered 'material' if it might affect the outcome of the litigation under the governing substantive law." Cross v. Cummins Engine Co. , 993 F.2d 112, 114 (5th Cir. 1993). Summary judgment is proper if the non-movant "fails to make a showing sufficient to establish the existence of an element essential to that party's case." Celotex Corp. , 477 U.S. at 322-23; Piazza's Seafood World, LLC v. Odom, 448 F.3d 744,752 (5th Cir. 2006). Although the court draws all reasonable inferences in favor of the non-movant, the non-movant "cannot defeat summary judgment with conclusory, unsubstantiated assertions, or 'only a scintilla of evidence.'" Turner v. Baylor Richardson Med. Center, 476 F.3d 337, 343 (5th Cir. 2007). Conjecture, conclusory allegations, unsubstantiated assertions and speculation are not adequate to satisfy the nonmovant's burden. Little v. Liquid Air Corp., 37 F.3d 1069, 1079 (5th Cir. 1994); Ramsey v. Henderson, 286 F.3d 264, 269 (5th Cir. 2002). Nor are pleadings competent summary judgment evidence. Little, 37 F.3d at 1075; Wallace v. Texas Tech. U. , 80 F.3d 1042, 1045 (5th Cir. 1996); Adams Family Trust v. John Hancock Life Ins. Co., 424 Fed. Appx. 377, 81 & n.11 (5th Cir. May 11, 2011).

A district court may not make credibility determinations or weigh evidence when deciding a summary judgment motion. Chevron Phillips, 570 F.3d 606, 612 n.3 (5th Cir. 2009), citing EEOC v. R.J. Gallagher Co., 181 F.3d 645, 652 (5th Cir. 1999). Nor does the court have to sift through the record in search of evidence to support opposition to summary judgment. Ragas v. Tennessee Gas Pipeline Co. , 136 F.3d 455, 458 (5th Cir. 1998).

"'On cross-motions for summary judgment, [the court] review[s] each party's motion independently, viewing the evidence and inferences in the light most favorable to the nonmoving party.'" Amerisure Ins. Co. v. Navigators Ins. Co., 611 F.3d 299, 304 (5thCir. 2010), quoting Ford Motor Co. v. Tex. Dep't of Transp., 264 F.3d 493, 498 (5th Cir. 2001).

Background

Pursuant to KB's subcontract with Innovative, KB claims it was an "additional insured" under a Blanket Additional Insured endorsement to Innovative's commercial general liability ("CGL") policy³ for a one-year term of October 18, 2000 through October 18, 2001, issued by Indian Harbor.⁴ KB served as the general contractor for the construction of a 246 single-family, government-subsidized housing development, known as "Mirasol," in San Antonio, Bexar County, Texas. In two underlying suits, which were consolidated for trial, KB and Innovative were sued for alleged construction defects and property damage at the Mirasol homes. San Antonio Housing Authority v. MAGI Realty, et al., Bexar County District Court Case No. 2007-CI-05258, filed in the 408th JudicialDistrict Court of Bexar County, Texas on April 9, 2007 ("the SAHA action"), and Arias, et al. v. KB Home, et al., Bexar County District Court Case No. 2009-CI-05175, filed in the 408th Judicial District Court of Bexar County, Texas on May 28, 2009 ("the Arias action"). After the cases were consolidated on January 7, 2010 for discovery and trial purposes, the parties reached a settlement in mid-2011. The underlying litigation was dismissed on December 14, 2011.

In the instant lawsuit Indian Harbor seeks a declaration that it owes no duty to defend or to indemnify KB for the claims against KB in the underlying consolidated lawsuit.

The Policy

The CGL policy in dispute covers "Bodily Injury and Property Damage Liability" and provides,

We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages.

#12, IHIC App. at 6, Section I,,A,1,a. Section I,A,1,b, states,

b. This insurance applies to "bodily injury" and "property damage" only if:

(1) The "bodily injury" or "property damage" is caused by an "occurrence" that takes place in the "coverage territory"; and

(2) The "bodily injury" or "property damage" occurs during the policy period.

"Property damage" is defined in Section V,15, IHIC App. at p. 17, as

a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or

b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the "occurrence" that caused it.

The Additional Insured endorsement (an ISO form no. 20 26 11 85) provides coverage to "all . . . organizations where required by written contract between such . . . organization and the named insured." IHIC App. 19. The Additional Insured endorsement states in relevant part, "WHO IS INSURED (Section II) is amended to include as an insured the person or organization shown in the Schedule as an insured but only with respect to liability arising out of your operations or premises owned by or rented to you." IHIC App. 19. The policy defines "you" and "your" as referring to the Named Insured in the Declarations and states that "'insured' means any person or organization qualifying as such under Section II--Who is an Insured." IHIC App. 6. The policy Declarations reference only Innovative as the Named Insured. Under Section V,19,

"Your work" means:

a. Work or operations performed by you or on your behalf, and

b. Materials, parts or equipment furnished in connection with such work or operations.

"Your work" includes:

a. Warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of "your work" and

b. The providing of or failure to provide warnings or instructions.

Relevant Substantive Texas Law

Because this declaratory judgment is in federal district court pursuant to diversity jurisdiction, the substantive law of the forum state, including choice of law rules, and federal procedural law govern. Erie Railroad v. Tompkins, 304 U.S. 64, 78 (1938); Hanna v. Plumer, 380 U.S. 460, 465 (1965); Arthur W. Tifford, PA v. Tandem Energy Corp., 562 F.3d 699, 705 n.2 (5th Cir. 2009). Since Texas is the forum state, Texas' substantive and choice-of-law rules apply. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941). Texas Insurance Code article 21.42 ("Texas Law Governs Policies")⁵ provides a choice-of-law rule...