Malone v. Scottsdale Ins. Co.

• Decision Date: 01 February 2001
• Docket Number: No. CIV. A. H-00-1871.,CIV. A. H-00-1871.
• Court: U.S. District Court — Southern District of Texas
• Parties: Mark MALONE, d/b/a Malone Construction Company, Plaintiff, v. SCOTTSDALE INSURANCE COMPANY, Defendant.

147 F.Supp.2d 623

Mark MALONE, d/b/a Malone Construction Company, Plaintiff, v. SCOTTSDALE INSURANCE COMPANY, Defendant.

No. CIV. A. H-00-1871.

United States District Court, S.D. Texas, Houston Division.

February 1, 2001.

COPYRIGHT MATERIAL OMITTED

Richard R Burroughs, Cleveland, TX, for Mark Malone dba Malone Construction Company, plaintiffs.

Kyle D Giacco, Daw and Ray, Willie Ben Daw, III, Daw & Ray, Houston, TX, for Scottsdale Insurance Company, defendant.

MEMORANDUM AND ORDER

ATLAS, District Judge.

This is an insurance coverage dispute. Pending before the Court is Defendant Scottsdale Insurance Company's ("Scottsdale") Motion for Summary Judgment [Doc. # 14] ("Defendant's Motion"). Plaintiff Mark Malone, d/b/a Malone Construction Company ("Malone"), has filed his response. See Plaintiff's Response to Defendant's Motion for Summary Judgment [Doc. # 15] ("Plaintiff's Response"). Having considered the parties' briefs, all matters of record and the applicable authorities, the Court concludes that Defendant's Motion should be granted.

I. BACKGROUND FACTS

In 1994, the Teste Family Partnership, Ltd. ("Teste") contracted with Malone to construct commercial improvements to its office and warehouse complex in Conroe, Texas. In February 1996, Teste brought suit against Malone in Texas state court, alleging numerous failures to properly construct the improvements (the "Teste suit"). See Plaintiff's Original Petition (Ex. C to Defendant's Motion). Teste subsequently filed a Seventh Amended Original Petition (Ex. D to Defendant's Motion) ("Seventh Teste Petition"). The Seventh Teste Petition states at the outset: "This case demonstrates the devastating consequences that result when a contractor, only experienced in constructing residential homes, undertakes a construction job for which it is ill-suited—the construction of substantial commercial improvements.... Predictably, the contractor failed miserably in its attempts to construct the commercial improvements." Id., ¶ 1. In support of its claim for "negligent construction of improvements to real property," Teste set forth an extensive list of Malone's failures to properly construct the improvements, naming over forty defects in Malone's work. Id., ¶¶ 11, 14. Judgment was eventually entered against Malone for $178,909.02 in actual damages, $75,000 in attorneys fees and $72,249.83 in pre-judgment interest, in addition to post-judgment interest and costs of court. See "Final Judgment" in Teste suit (Ex. E to Original Petition), attachment to Notice of Removal [Doc. # 1] ("Malone Petition").

Between January 5, 1995 and August 24, 1995, Malone was insured under a commercial general liability policy issued by Scottsdale (the "Scottsdale Policy").¹ The Policy contained numerous exclusions for property damage caused by faulty workmanship. Malone notified Scottsdale of the Teste suit and sought a defense under the Scottsdale Policy. Scottsdale denied coverage, stating that it had no duty to defend Malone. See Letter from Cathy Gilchrist, Scottsdale Insurance Company, to Mark Malone, May 3, 1996 (Ex. C to Malone Petition). Scottsdale reiterated its denial of coverage in a letter dated December 29, 1999, in response to a request for indemnification by Malone's attorney. Letter from Cathy Gilchrist to Richard R Burroughs, December 29, 1999 (Ex. G to Malone Petition).

On May 5, 2000, Malone filed suit against Scottsdale in the 258th Judicial District of San Jacinto County seeking the costs of his defense and indemnity in the Teste suit. Defendant removed to this Court on June 5, 2000 on the basis of complete diversity of citizenship. On November 15, 2000, Defendant moved for summary judgment, asserting that the Scottsdale Policy did not afford Malone coverage for the Teste suit.

II. SUMMARY JUDGMENT STANDARD

In deciding a motion for summary judgment, the Court must determine whether "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); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir.1994) (en banc); Bozé v. Branstetter, 912 F.2d 801, 804 (5th Cir.1990). Material facts are those facts "that might affect the outcome of the suit under the governing law." Smith v. Brenoettsy, 158 F.3d 908, 911 (5th Cir.1998) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). The facts are to be reviewed with all "justifiable inferences" drawn in favor of the party opposing the motion. See Morris v. Covan World Wide Moving, Inc., 144 F.3d 377, 380 (5th Cir.1998) (citing Anderson, 477 U.S. at 255, 106 S.Ct. 2505).

The party moving for summary judgment has the initial burden of demonstrating the absence of a material fact issue with respect to those issues on which the movant bears the burden of proof at trial. The movant meets this initial burden by showing that the "evidence in the record would not permit the nonmovant to carry its burden of proof at trial." Smith, 158 F.3d at 911. The burden then shifts to the nonmovant to demonstrate that summary judgment is inappropriate. See Morris, 144 F.3d at 380. This is accomplished by producing "significant probative evidence" that there is an issue of material fact so as to warrant a trial, see Texas Manufactured Hous. Ass'n v. Nederland, 101 F.3d 1095, 1099 (5th Cir.1996), cert. denied, 521 U.S. 1112, 117 S.Ct. 2497, 138 L.Ed.2d 1003 (1997); Taylor v. Principal Financial Group, Inc., 93 F.3d 155, 161 (5th Cir.1996); Transamerica Ins. Co. v. Avenell, 66 F.3d 715, 718-19 (5th Cir.1995); Forsyth v. Barr, 19 F.3d 1527, 1533 (5th Cir.1994), and that is "sufficient to support a jury verdict." Morris, 144 F.3d at 380; accord Doe v. Dallas Indep. School Dist., 153 F.3d 211, 215 (5th Cir.1998). In the absence of any proof, the court will not assume that the nonmovant could or would prove the necessary facts. See McCallum Highlands, Ltd. v. Washington Capital Dus, Inc., 66 F.3d 89, 92 (5th Cir.), revised on other grounds upon denial of reh'g, 70 F.3d 26 (5th Cir.1995); Little v. Liquid Air Corp., 37 F.3d at 1075 (citing Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 888, 110 S.Ct. 3177, 111 L.Ed.2d 695 (1990)).

II. DISCUSSION

Defendant Scottsdale asserts two grounds for denying coverage to Malone. First, Scottsdale argues that the property damage suffered by Teste was not caused by an "occurrence" as that term is defined in the Scottsdale Policy. Second, Scottsdale contends that the Policy contains several exclusions for property damage caused by the insured's faulty workmanship.

A. Duty to Defend

In determining an insurer's duty to defend, courts apply the "eight corners" rule, examining the factual allegations in the petition and the language of the insurance policy. Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d 819, 821-22 (Tex.1997) (citing American Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842, 847-48 (Tex. 1994)). A court must focus on the factual allegations rather than the legal theories asserted in reviewing the underlying petition. Farmers Texas County Mutual Ins. Co. v. Griffin, 955 S.W.2d 81, 83 (Tex. 1997). The duty to defend is unaffected by facts ascertained before suit, developed in trial, or by the ultimate outcome of the case. See Argonaut Southwest Ins. Co. v. Maupin, 500 S.W.2d 633, 635-36 (Tex. 1973); Reser v. State Farm Fire & Casualty Co., 981 S.W.2d 260, 263 (Tex.App.— San Antonio 1998, n.w.h.); Snug Harbor, Ltd. v. Zurich Ins., 968 F.2d 538 (5th Cir.1992).

1. Policy Definition of "Occurrence"

Defendant contends that the Scottsdale Policy does not cover Malone's liability in the Teste suit because the damage sustained by Teste was not caused by an "occurrence" as that term is defined in the Policy. Defendant relies primarily on the recent case Hartrick v. Great American Lloyds Ins. Co., 2000 WL 1159603 (Tex.App.—Houston [1st Dist.] 2000, n.w.h.).

The Scottsdale Policy covers bodily injury and property damage caused by an "occurrence" that takes place in the coverage territory. Scottsdale Policy, at 1. The Policy defines an "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." Id., at 11. Defendant Scottsdale contends that the damage sustained by Teste was caused by Malone's faulty workmanship and thus does not constitute an accident.

In Hartrick, the plaintiffs discovered construction defects in their home and obtained a judgment against the builder. The builder sought coverage from its insurance company. The definition of "occurrence" under the builder's policy in Hartrick was identical to the definition in the Scottsdale Policy. Id., 2000 WL 1159603 *2. The court first noted that, recognizing variation in policy terms and circumstances, "the general rule [is] that a broad form CGL policy does not insure a contractor because his workmanship was faulty." Id., 2000 WL 1159603 *4 (citations omitted). The court then discussed the meaning given to the term "accident" by the Texas Supreme Court in Mid-Century Ins. Co. v. Lindsey, 997 S.W.2d 153, 155 (Tex.1999). In Lindsey, the court held that an injury is accidental if "from the viewpoint of the insured, [it is] not the natural and probable consequence of the action or occurrence which produced the injury" (citation omitted). The court in Hartrick ruled for the insurance company, holding that when "an injury [that] results from voluntary and intentional conduct, here, not preparing the soil and not constructing the foundation in keeping with the promises implied on [the builder] by law, the injury is not an `accident' and, therefore, not an `occurrence.'" Hartrick, 2000 WL 1159603, at *5.

The Seventh Teste Petition alleges that Malone ...