Liberty Mut. Ins. Co. v. Graham
| Decision Date | 21 December 2006 |
| Docket Number | No. 05-10866.,05-10866. |
| Citation | 473 F.3d 596 |
| Parties | LIBERTY MUTUAL INSURANCE COMPANY, Plaintiff-Appellee, v. Paul M. GRAHAM, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Idolina Garcia (argued), Veronica Martinsen Bates, Hermes Sargent Bates, Dallas, TX, for Liberty Mut. Ins.
Cherie Kay Batsel (argued), Richard A. Harwell, John M. Cox & Associates, Dallas, TX, for Graham.
On Appeal from the United States District Court for the Northern District of Texas.
Before JONES, Chief Judge, and DAVIS and GARZA, Circuit Judges.
In this diversity case, the Appellant, Paul M. Graham ("Graham"), appeals the district court's grant of summary judgment declaring that Appellee, Liberty Mutual Insurance Company ("Liberty"), has no duty to defend or indemnify him under the omnibus clause of the insurance policy issued by Liberty to Graham's employer, Eagle Contracting, L.P. ("Eagle"), covering Eagle's vehicles.
On appeal, Graham argues that the district court improperly considered extrinsic evidence to defeat Liberty's duty to defend in violation of Texas's eight-corners rule. Because we agree, we REVERSE the district court's judgment and RENDER judgment that Liberty has a duty to defend Graham. We also conclude that genuine issues of material fact remain regarding whether Graham was using the company vehicle with the permission of Eagle at the time of the accident. Accordingly, we REVERSE the district court's summary judgment declaring that Liberty has no duty to indemnify Graham and REMAND to the district court for further proceedings.
On the night of November 11, 2003, Graham was driving a company vehicle belonging to his employer Eagle when he collided with a motorcycle carrying Mikel Johnson and Christy Wright ("state court plaintiffs"). At the time of the accident, Graham was on his way home from a local restaurant where he had been celebrating his 40th birthday with a friend. Graham, who had consumed alcoholic beverages at the restaurant, fell asleep while driving his company truck and ran into the back of the state court plaintiffs' motorcycle.
Johnson and Wright filed suit in state district court asserting that Graham negligently operated the vehicle and Eagle was negligent for entrusting the vehicle to Graham.1 The state court plaintiffs also asserted claims against Eagle based on a respondeat superior theory.
At the time of the accident, Liberty's policy covering the Eagle vehicle provided in part as follows:
We will pay all sums an insured legally must pay as damages because of bodily injury or property damage to which this insurance applies, caused by an accident and resulting from the ownership; maintenance or use of a covered auto.
We have the right and duty to defend any suit asking for these damages. However, we have no duty to defend suits for bodily injury or property damage not covered by this Coverage Form. We may investigate and settle any claim or suit as we consider appropriate.
The policy defined the word "insured," as used in the policy, as follows:
WHO IS AN INSURED
The following are insureds:
a. You for any covered auto.
b. Anyone else while using with your permission a covered auto you own, hire or borrow. . . .
The policy explains that the words "you" and "your" refer to Eagle, the named insured. Graham asserts coverage through the permissive-user or omnibus clause in subpart (b).
With regard to Graham's permission to use his company vehicle, the state court plaintiffs' petition states in part:
• At the time of the incident complained of, Defendant Graham was driving a Truck registered to his employer
• Such vehicle was entrusted to defendant Graham by [Eagle] as part of his job
• Paul Graham has a long history of permissive use of the vehicle notwithstanding any written or unwritten policies to the contrary
• Eagle . . . knew and condoned the use of a company vehicle by Graham and other employees in violation of purported policies
• Eagle has no effective or even attempted policy or practice to regulate personal use of vehicles other than [giving employees a written vehicle policy]
• Paul Graham had all of his gasoline and maintenance costs reimbursed by Eagle
• Eagle had receipts clearly indicative of the use of Graham's company vehicle for personal use
• The night of the incident . . . was the fortieth (40) Birthday of Defendant Graham. [Eagle] regularly allow[s] some of its employees, including Defendant Graham, to drive business vehicles in pursuit of personal activities.
Graham asserts that the allegations at least support an inference that he had implied permission to use the Eagle vehicle.
Liberty brought this action for declaratory judgment in the district court against Graham seeking a declaration that Liberty is not obligated to defend or indemnify Graham in the underlying tort suit. In its motion for summary judgment, Liberty sought to establish the unauthorized nature of Graham's use of the vehicle by introducing Eagle's written vehicle usage policy ("Vehicle Policy") as well as evidence of Graham's intoxication. The Vehicle Policy was given to Graham when he received his company truck and states that "usage of the [company] vehicle must be limited to company related business."
Graham argued to the district court that Liberty owed him a defense because under Texas's eight-corners rule, a liability insurer's duty to defend is to be determined solely from the terms of the insurance policy and the pleadings of the underlying plaintiff. Graham contended that because the complaint alleges permission and the policy covers permissive drivers, the duty to defend was invoked. Liberty argued that the complaint does not allege permissive use of the vehicle and that, even if it does, this case justifies an exception to the eight-corners rule and considering extrinsic evidence is appropriate because such evidence relates solely to a coverage determination.
The district court, while acknowledging the general prohibition against extrinsic evidence in duty to defend disputes, concluded that extrinsic evidence was proper in this case for both of the reasons asserted by Liberty. First, the district court found that the insurance policy and third party complaint did not permit a conclusive determination on coverage. The court explained that the state court plaintiffs' reference to the use of the vehicle with permission at other times and places did not address permission on the night in question. Second, the district court found that the extrinsic evidence related only to a coverage determination.
Based on these conclusions, the district court considered extrinsic evidence and found that the evidence affirmatively established a lack of permissive use by Graham at the time of the accident. The judge particularly relied upon evidence that the defendant had received and signed a copy of the Vehicle Policy. As a result, the district court found that the insurance company had neither a payment nor defense obligation and granted Liberty's motion for summary judgment. Graham lodged a timely appeal.
The central issue in this case is whether the district court erred in concluding that Graham was not entitled to a defense from Liberty in the state court suit brought by the state court plaintiffs. The resolution of this question depends on whether the state court plaintiffs' allegations are sufficient to demonstrate that Graham was a permissive user of the Eagle vehicle and an "insured."
This court reviews whether an insurer has a duty to defend its insured in an underlying suit as a de novo question of law.2 Similarly, this court reviews de novo a district court's grant of summary judgment, applying the same standard as below.3 The parties agree that Texas law governs this diversity case.
As a general proposition, Texas has followed the "eight-corners rule." Under this rule, an insurer's duty to defend is determined by the underlying plaintiff's pleadings, considered in light of the policy provisions, without regard to the truth or falsity of those allegations.4 As the name of the rule suggests, only two documents are ordinarily relevant to the determination of the duty to defend: the policy and the pleadings of the underlying claimant.5 Facts outside the pleadings, even those easily ascertained, are ordinarily not material to the determination and allegations against the insured are liberally construed in favor of coverage.6
If the four corners of a petition allege facts stating a cause of action which potentially falls within the four corners of the policy's scope of coverage, the insurer has a duty to defend.7 If all the facts alleged in the underlying petition fall outside the scope of coverage, then there is no duty to defend, but we resolve all doubts regarding duty to defend in favor of the duty.8
After the district court rendered its judgment, the Texas Supreme Court issued its decision in GuideOne Ins. Co. v. Fielder Rd. Baptist Church9 which we conclude controls this appeal.10 In that case, GuideOne Insurance Company ("GuideOne") issued a liability policy to Fielder Road Baptist Church ("Church") which included liability coverage for claims against the Church for sexual misconduct of its employees occurring during the policy period of March 31, 1993 to March 31, 1994. In 2001, Jane Doe sued the Church and a former employee, Charles Patrick Evans, for sexual misconduct. In her pleadings, Jane Doe alleged that "[a]t all times material herein from 1992 to 1994, Evans was employed as an associate youth minister and was under [the Church]'s direct supervision and control when he sexually exploited and abused Plaintiff." Based on these allegations, the Church asserted that the policy required GuideOne to defend it in the lawsuit and indemnify it for any judgment or settlement.
GuideOne challenged its duty to defend and obtained discovery from the Church indicating that Evans's employment ended on ...
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