Lamar Homes, Inc. v. Mid-Continent Cas. Co., A-03-CA-553-LY.

• Decision Date: 02 August 2004
• Docket Number: No. A-03-CA-553-LY.,A-03-CA-553-LY.
• Parties: LAMAR HOMES, INC., Plaintiff, v. MID-CONTINENT CASUALTY COMPANY, Defendant.
• Court: U.S. District Court — Western District of Texas

335 F.Supp.2d 754

LAMAR HOMES, INC., Plaintiff, v. MID-CONTINENT CASUALTY COMPANY, Defendant.

No. A-03-CA-553-LY.

United States District Court, W.D. Texas, Austin Division.

August 2, 2004.

Kevin R. Childs, Cathie Childs, Austin, TX, for Lamar Homes, Inc., plaintiff.

James Hans Barcus, J. Jonathan Hlavinka, Engvall and Hlavinka L.L.P., Richard P. Hogan, Jr., Hogan, Dubose & Townsend, John Jr. Engvall, Engvall and Hlavinka L.L.P., Houston, TX, for Mid-Continent Casualty Company, defendant.

OPINION AND ORDER ON MOTIONS FOR SUMMARY JUDGMENT

YEAKEL, District Judge.

Before the Court are Plaintiff's Motion for Partial Summary Judgment filed October 24, 2003 (Doc. # 8); Defendant Mid-Continent Casualty Company's Response to Plaintiff's Motion for Partial Summary Judgment filed November 3, 2003 (Doc. # 12); Plaintiff Lamar Homes, Inc.'s Reply to Defendant's Response to Motion for Partial Summary Judgment filed November 13, 2003 (Doc. # 19); Defendant Mid-Continent Casualty Company's Cross-Motion for Final Summary Judgment filed February 25, 2004 (Doc. # 25); Plaintiff Lamar Homes, Inc.'s Response to Defendant Mid-Continent Casualty Company's Cross-Motion for Final Summary Judgment filed March 8, 2004 (Doc. # 29); Mid-Continent's Supplemental Brief Regarding Pending Motions for Summary Judgment filed May 21, 2004 (Doc. # 43); and Additional Briefing for Purposes of Plaintiff's Motion for Partial Summary Judgment filed May 21, 2004 (Doc. # 45). A hearing was held on the above-listed motions on June 4, 2004, at which the Court heard the arguments of counsel on both motions. Having reviewed the summary-judgment motions, responses, reply, and additional briefing, as well as all summary-judgment evidence submitted by the parties and the arguments of counsel at the hearing, the Court finds that Plaintiff's Motion for Partial Summary Judgment should be denied and Defendant's Cross-Motion for Final Summary Judgment should be granted for the following reasons.

I. Background

This declaratory judgment action involves the defense and indemnity obligation of Defendant Mid-Continent Casualty Company ("Mid-Continent") owed to Plaintiff Lamar Homes, Inc. ("Lamar") in connection with the following underlying state-court litigation: Vincent M. and Janice D. DiMare v. Lamar Homes, Inc., et al., Cause No. GN 300137, in the 53rd Judicial District Court of Travis County, Texas (the "DiMare Litigation"). Mid-Continent filed what it termed a "cross-motion" seeking a determination from the Court that it does not have a duty to defend or indemnify Lamar in connection with the underlying litigation.

Mid-Continent issued a commercial general liability policy to Lamar, number 04-GL-0000563 83, effective July 1, 2001, through July 1, 2002 (the "Policy"). In March 2003, Lamar was served with the petition in the DiMare Litigation, which was subsequently amended. On March 13, 2003, Lamar tendered the DiMare Litigation to Mid-Continent and requested a defense and indemnification. On April 30, 2003, Mid-Continent denied coverage to Lamar for the claims asserted in the DiMare Litigation. Lamar filed suit against Mid-Continent in the 201st Judicial District Court of Travis County, Texas on July 8, 2003. Mid-Continent removed the cause to this Court.

Lamar filed a motion for partial summary judgment, and Mid-Continent filed a "cross-motion" for final summary judgment. A hearing was held before this Court on both motions on June 4, 2004, at which the parties agreed to limit the Court's consideration on the motions to the sole issue of whether Mid-Continent owed a duty to defend Lamar in the DiMare Litigation.

II. Analysis

A. Legal Standard

Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). "If the moving party meets the initial burden of showing there is no genuine issue of material fact, the burden shifts to the nonmoving party to produce evidence or designate specific facts showing the existence of a genuine issue for trial." Allen v. Rapides Parish Sch. Bd., 204 F.3d 619, 621 (5th Cir.2000) (internal quotations and citations omitted). When both parties move for summary judgment, the court reviews each party's motion independently, viewing the evidence and inferences in the light most favorable to the nonmoving party. Ford Motor Co. v. Texas Dept. of Transp., 264 F.3d 493, 498 (5th Cir.2001) (citing Taylor v. Gregg, 36 F.3d 453, 455 (5th Cir.1994)). Doubts are to be resolved in favor of the nonmoving party, and any reasonable inferences are to be drawn in favor of that party. See Burch v. City of Nacogdoches, 174 F.3d 615, 619 (5th Cir.1999). However, "[n]either `conclusory allegations' nor `unsubstantiated assertions' will satisfy the non-movant's burden," Wallace v. Texas Tech Univ., 80 F.3d 1042, 1047 (5th Cir.1996), and only disputes over facts that might affect the outcome of the lawsuit under governing law will preclude the entry of summary judgment, see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

B. The "Eight-Corners Rule"

In a diversity case such as this one, this Court must apply the substantive law of Texas. See Harken Exploration Co. v. Sphere Drake Ins. P.L.C., 261 F.3d 466, 470 n. 3 (5th Cir.2001). The limited issue before this Court is whether Mid-Continent owed a duty to defend Lamar in the underlying state-court litigation. Texas courts apply the "eight-corners" or "complaint allegation" rule in deciding whether an insurer owes a duty to defend. Potomac Ins. Co. v. Jayhawk Med. Acceptance Corp., 198 F.3d 548, 551 (5th Cir.2000); King v. Dallas Fire Ins. Co., 85 S.W.3d 185, 187 (Tex.2002). Under the rule, courts must determine whether an insurer owes a duty to defend "solely from the allegations in the most recent [underlying] petition and the language of the insurance policy." Harken Exploration Co., 261 F.3d at 471; King, 85 S.W.3d at 187.

The insured bears the burden of showing that the claim against it is potentially within the insurance policy's scope of coverage. Harken Exploration Co., 261 F.3d at 471. There can be shifting burdens involved if the insurer relies on the policy's exclusions to deny coverage. Id. In this dispute, however, Mid-Continent concedes that the exclusions do not apply. Therefore, the burden remains with Lamar to prove that the DiMare Litigation is within the scope of coverage of the Policy.

Under the eight-corners rule, this Court must look to the most recent petition in the DiMare Litigation to determine whether the alleged misconduct on the part of Lamar triggered coverage by Mid-Continent. "The general rule is that the insurer is obligated to defend [its insured] if there is, potentially, a case under the [underlying petition] within the coverage of the policy." Nat'l Union Fire Ins. Co. v. Merchants Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex.1997) (quoted in Harken Exploration Co., 261 F.3d at 471). "The focus of this inquiry is on the facts alleged, not on the actual legal theories." St. Paul Fire & Marine Ins. Co. v. Green Tree Fin., 249 F.3d 389, 392 (5th Cir.2001) (citing Maayeh v. Trinity Lloyds Ins. Co., 850 S.W.2d 193, 195 (Tex.App. — Dallas 1992, no writ)). "Those allegations are to be considered `without reference to the truth or falsity of such allegations.'" King, 85 S.W.3d at 191 (citing Argonaut Southwest Ins. Co. v. Maupin, 500 S.W.2d 633, 635 (Tex.1973)). "If there is a `doubt as to whether or not the [factual] 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.'" Harken Exploration Co., 261 F.3d at 471 (quoting Merchants Fast Motor Lines, Inc., 939 S.W.2d at 141); King, 85 S.W.3d at 187.

The Policy defines "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." The Policy, however, does not define the term "accident." Thus, this Court must give accident its plain, ordinary, and generally accepted meaning. Harken Exploration Co., 261 F.3d at 472 (citing Western Reserve Life Ins. v. Meadows, 152 Tex. 559, 261 S.W.2d 554, 557 (1953)). Although the Texas Supreme Court has not articulated a hard and fast rule for when an accident occurs, see Mid-Century Ins. Co. v. Lindsey, 997 S.W.2d 153, 155 (Tex.1999), that court has held that an "accident" includes the "negligent acts of the insured causing damage which is undesigned and unexpected," Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d 819, 828 (Tex.1997). Thus, an insured's negligent acts that cause undesigned and unexpected damage would qualify as an accident included in the definition of an occurrence covered under the Policy.

This Court must look to the factual allegations contained in the most recent petition in the DiMare Litigation to determine whether they allege an occurrence as discussed above. Plaintiffs' First Amended Petition (the "petition") is the last live pleading in the DiMare Litigation and alleges the following in Paragraphs VII.C. and XI.A.:

Plaintiffs will show that Lamar Homes failed to design and/or construct the foundation of the residence in a good and workmanlike fashion. The defects in Plaintiffs' residence include, but are not limited to, the following:

i. excessive deflection of foundation;

ii. foundation not constructed sufficiently stiffly to withstand differential movements of soil underlying such foundation;

iii. cracks in the sheetrock and stone veneer of the residence; and,

iv. binding and ghosting doors.

. . . . .

Plaintiffs will show that Lamar Homes...