Lafarge Corp. v. Hartford Cas. Ins. Co.
| Decision Date | 21 August 1995 |
| Docket Number | No. 94-20137,94-20137 |
| Citation | 61 F.3d 389 |
| Parties | LAFARGE CORPORATION, et al., Plaintiffs, Lafarge Corporation, Plaintiff-Appellee, Cross-Appellant, v. HARTFORD CASUALTY INSURANCE CO., Defendant-Appellant, Cross-Appellee. HARTFORD CASUALTY INSURANCE CO., Plaintiff-Appellant, Cross-Appellee, v. LAFARGE CORPORATION, Defendant-Appellee, Cross-Appellant. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Douglas A. Haldane, Diane M. Guariglia, Ronnie B. Arnold, Clifford A. Lawrence, Jr., Lorance & Thompson, Houston, TX, for defendant-appellant.
Jill A. Douthett, Elizabeth W. Fox, Philadelphia, PA, Robert J. Filteau, Filteau, Sullivan & Georgantas, P.C., Houston, TX, for appellees.
Appeals from the United States District Court for the Southern District of Texas.
Before KING, GARWOOD and BENAVIDES, Circuit Judges.
Plaintiff-appellant Hartford Casualty Insurance Co. (Hartford) appeals the district court's judgment that Hartford had a duty to defend its insured, defendant-appellee Lafarge Corporation (Lafarge), in the underlying litigation and ordering Hartford to pay an apportioned amount of Lafarge's defense costs, as well as Lafarge's attorneys' fees and prejudgment interest. Lafarge cross-appeals, claiming that the district court erred in apportioning Hartford's share of defense costs and in awarding Hartford summary judgment on Lafarge's Texas Insurance Code claims. We affirm in part, reverse in part, and remand.
The present controversy arises out of a suit filed against Lafarge and various other defendants by All American Pipeline Company (All American). All American contracted with American West Pipeline Constructors (American West) for the construction of a pipeline to run from Santa Barbara, California, to McCamey, Texas. American West subcontracted Leonard Pipeline-Anchor Wate (LAC) to provide a special coating to protect the pipeline, which was to be buried, from the elements. LAC is a joint venture; one of the joint venturers, Anchor Wate, is a wholly-owned subsidiary of Lafarge.
Sometime around February 1988, All American discovered that the protective coating supplied by LAC had failed at the field joints, damaging the pipeline. In August 1988, it sued, among others, LAC, and Anchor Wate individually, for breach of contract, breach of warranty, strict products liability, negligence, and misrepresentation. All American also named Lafarge as a defendant on the basis of a surety promise allegedly made by Lafarge on behalf of LAC and its individual corporate venturers. In September 1989, All American amended its petition to add a claim against Lafarge for its own negligence. In the amended petition, All American also alleged that Anchor Wate was the alter ego of Lafarge and that Lafarge was thereby liable for Anchor Wate's alleged negligence.
Hartford was Lafarge's comprehensive general liability insurer from April 1, 1987, to April 1, 1988. Lafarge tendered the original petition to Hartford for defense on January 18, 1989. Although Hartford initially acknowledged that the claims against Lafarge might be covered under the policy, it ultimately denied coverage. In response to Lafarge's notice that it intended to sue, as required under the Texas Insurance Code, Hartford asserted that it would reimburse only those defense costs incurred after August 13, 1990, the date on which Hartford first received All American's amended petition. On February 12, 1991, Hartford filed a declaratory judgment action against Lafarge and Anchor Wate in federal district court in Virginia. On March 28, 1991, Lafarge filed a breach of contract and declaratory judgment suit against Hartford in Texas state court. Hartford removed the suit to the district court below, where it was consolidated with the Virginia action.
On May 17, 1991, Lafarge moved for partial summary judgment on its breach of contract claims. Hartford filed a cross-motion for summary judgment on the duty to defend and coverage issues, as well as a motion for summary judgment on Lafarge's Texas Insurance Code claims. By order of December 7, 1991, the district court granted Lafarge's motion in part, finding that Hartford did have a duty to defend under both the original and amended petitions. However, the district court determined that, because the injury to the pipeline was a continuing one and Hartford had provided coverage for only a part of the period during which the injury accumulated, 1 its liability should be prorated to reflect its proportionate "time on the risk." It therefore held Hartford liable for 30% of Lafarge's past and future defense costs. 2 In addition, the district court granted Hartford's cross-motion in part by dismissing Lafarge's Texas Insurance Code claims; the district court determined that, although ultimately wrong in its determination, Hartford had a reasonable basis for contesting its duty to defend and that it had acted reasonably in investigating and responding to the underlying claims. Finally, it found that Hartford's motion for summary judgment on the coverage issues was premature because the underlying litigation had not yet been resolved.
Hartford then moved for clarification, and Lafarge for reconsideration, of certain issues addressed in the December 7 order. The district court reaffirmed its order, but added that, because Hartford's liability for defense costs had been apportioned, Lafarge's deductible under the policy should also be apportioned. It found that the policy was silent as to what should occur if, as here, Hartford was required to pay only a percentage of the defense costs, and therefore correspondingly reduced Lafarge's deductible by 30%. 3
After the underlying litigation with All American settled, Lafarge filed a motion for entry of an award of money damages, pre- and post-judgment interest, and attorneys' fees. Hartford filed objections. 4 The district court found that Lafarge was entitled to an amount equal to 33.9% of its total defense costs, less 33.9% of the $250,000 policy deductible. It also awarded prejudgment interest on that sum at a rate of 10%. 5 Lastly, the district court, having undertaken a lengthy survey of applicable Texas law, determined that Lafarge was entitled to an award of reasonable attorneys' fees under Tex.Civ.Prac. & Rem.Code Sec. 38.001(8). By its final judgment of January 28, 1994, the district court awarded Lafarge
1) defense expenses in the amount of $457,089.05;
2) $138,183.61 in prejudgment interest;
3) $198,000 in attorneys' fees;
4) post-judgment interest at a rate of 3.67% (as specified in 28 U.S.C. Sec. 1961) on items 1 through 3 from the date of judgment until paid; and
5) additional attorneys' fees in the amount of $30,000 if Hartford pursues an unsuccessful appeal to this Court.
Hartford timely appealed to this Court; Lafarge timely cross-appealed.
Initially, Hartford argues that, under a variety of exclusions in Lafarge's insurance policy, Hartford had no duty to defend Lafarge in the underlying suit. In determining whether an insurer has a duty to defend its insured, Texas courts generally look only to the allegations of the plaintiff's complaint and the terms of the insurance contract. American Alliance Insurance Co. v. Frito-Lay, Inc., 788 S.W.2d 152, 153-54 (Tex.App.--Dallas 1990, writ dismissed). Under this so-called "eight corners rule" or "complaint allegation rule," the allegations of the complaint are taken as true, and the duty to defend arises if the complaint thus construed asserts a claim facially within the coverage of the policy as reflected by its terms. Gulf Chemical & Metallurgical Corp. v. Associated Metals & Minerals Corp., 1 F.3d 365, 369 (5th Cir.1993). Even if the plaintiff's complaint alleges multiple claims or claims in the alternative, some of which are covered under the policy and some of which are not, the duty to defend arises if at least one of the claims in the complaint is facially within the policy's coverage. Rhodes v. Chicago Insurance Co., 719 F.2d 116, 119 (5th Cir.1983). The duty to defend is thus broader than the duty to indemnify. Gulf Chemical, 1 F.3d at 369. Despite the breadth of this duty when applicable, however, Fidelity & Guaranty Insurance Underwriters, Inc. v. McManus, 633 S.W.2d 787, 788 (Tex.1982) (citations omitted).
Applying these principles, we conclude that most of the exclusions on which Hartford relies in denying its duty to defend are clearly not applicable to the case at hand. We find merit, however, in Hartford's argument that the "incidental contract" provision precluded a duty to defend against All American's original petition, which only alleged a surety claim against Lafarge. We therefore conclude that Hartford had no duty to defend until the amended petition was tendered to it. We will address each of Hartford's arguments in turn.
Hartford first argues that, under the policy's "own products" exclusion, under which no coverage is provided for "property damage to the named insured's products arising out of such products or any part of such products," it is not required to defend Lafarge with respect to that portion of damages that represented the cost of replacing the coating, as opposed to the damages for the cost of replacing the pipeline itself. This argument is wholly without merit. That Hartford may not ultimately be required to indemnify Lafarge for the replacement cost of the coating does not abrogate its duty to defend a covered cause of action in the first instance. The complaint clearly alleged that the defective coating caused damage to the pipeline; this was the damage (or part of the damage) for which recovery was sought.
Hartford next argues that the petition was ambiguous as to...
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