Mathews Heating & Air Cond. v. Liberty Mut. Fire

• Decision Date: 21 October 2004
• Docket Number: No. Civ.A. 303CV2910-P.,Civ.A. 303CV2910-P.
• Citation: 384 F.Supp.2d 988
• Parties: MATHEWS HEATING & AIR CONDITIONING LLC, Plaintiff, v. LIBERTY MUTUAL FIRE INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Northern District of Texas

384 F.Supp.2d 988

MATHEWS HEATING & AIR CONDITIONING LLC, Plaintiff, v. LIBERTY MUTUAL FIRE INSURANCE COMPANY, Defendant.

No. Civ.A. 303CV2910-P.

United States District Court, N.D. Texas, Dallas Division.

October 21, 2004.

COPYRIGHT MATERIAL OMITTED

Stephen C. Rasch, Jason L. Cagle, Thompson & Knight, Dallas, TX, for Plaintiff.

Mark D. Tillman, Sedgwick Detert Moran & Arnold, Dallas, TX, for Defendant.

MEMORANDUM OPINION AND ORDER

SOLIS, District Judge.

Now before the Court is Defendant Liberty Mutual Fire Insurance Company's Motion for Summary Judgment, filed August 19, 2004.¹ After careful consideration of the Parties' briefing, evidence, and applicable law, the Court denies Defendant's Motion for Summary Judgment.

I. Background

Defendant Liberty Mutual Fire Insurance Company ("Liberty") issued a commercial general liability ("CGL") policy to Plaintiff Mathews Heating & Air Conditioning ("Mathews"). The policy coverage extended from February 1, 1999 to February 1, 2000. (Br. in Supp. of Def's. Mot. for Summ. J. at 1.) Mathews is in the air conditioning business. John and Margo Chestnut ("the Chestnuts") sued Mathews for breach of contract, fraudulent misrepresentations, and negligence² related to the design, installation and maintenance of an air conditioning system. Mathews tendered the Third, Fourth, Fifth, and Sixth Amended Petitions in the underlying suit to Liberty, its insurer. Liberty maintained that the claims were not covered under the policy, and denied coverage. As a result, Mathews obtained outside representation to defend them in the underlying suit. The underlying suit has settled. Subsequently, Mathews filed suit to recover damages for Liberty's failure to defend under the insurance policy. Mathews alleges breach of contract, violations of Tex. Ins.Code art. 21.21 and 21.55.

II. Summary Judgment — Legal Standard

Summary judgment shall be rendered when the pleadings, depositions, answers to interrogatories and admissions on file, together with affidavits, if any, show that there is no genuine issue of material fact and 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, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The moving party bears the burden of informing the district court of the basis for its belief that there is an absence of a genuine issue for trial, and of identifying those portions of the record that demonstrate such an absence. Id. at 323, 106 S.Ct. 2548. When the moving party bears the burden of proof on a matter, "[it] must establish beyond peradventure all of the essential elements of the claim or defense to warrant judgment in [its] favor." Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir.1986) (emphasis original). Summary judgment must be denied if a genuine issue of material fact remains in spite of the evidence traduced by the moving party.

The nonmoving party may but need not present evidence casting doubt on the sufficiency of the moving party's proof. All evidence and the reasonable inferences to be drawn therefrom must be viewed in the light most favorable to the party opposing the motion. United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 8 L.Ed.2d 176 (1962). When the nonmovant fails to provide a response identifying the disputed issues of fact, however, the Court is entitled to accept the movant's description of the undisputed facts as prima facie evidence of its entitlement to judgment. Eversley v. MBank Dallas, 843 F.2d 172 173-174 (5th Cir.1999); Nordar Holdings, Inc. v. Western Sec. (USA) Ltd., No. 3:96-CV-0427-H, 1996 WL 739019, *2 (N.D.Tex. Dec. 18, 1996). The Court has no duty to search the record for triable issues. Ragas v. Tennessee Gas Pipeline Co., 136 F.3d 455, 458 (5th Cir.1998).

III. Breach of Contract

A. Legal Standard

The Court follows Texas law when determining whether an insurance company has a duty to defend its insured. See Essex Ins. Co. v. Redtail Prods., Inc., No. Civ. A. 3:97-CV-2120-D, 1998 WL 812394, at *1 (N.D.Tex. Nov. 12, 1998) (Fitzwater, J.). Under Texas law, the "complaint allegation rule," also known as the "eight corners rule," requires that an insurer's duty to defend be determined solely from the face of the plaintiff's complaint in the underlying action and the language of the insurance policy. See id.; Gemmy Indus. Corp. v. Alliance Gen. Ins. Co., 190 F.Supp.2d 915, 918 (N.D.Tex.1998); National Union Fire Ins. Co. v. Merchants Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex.1997). The court compares the four corners of the insurance policy with the four corners of the plaintiff's pleading³ to determine whether any claim alleged by the pleading is potentially within the policy coverage. See Guaranty Nat'l Ins. Co. v. Vic Mfg. Co., 143 F.3d 192, 193 (5th Cir.1998).

Following this rule, "an insurer has a duty to defend its insured when any claim advanced by the plaintiff in the underlying litigation potentially states a cause of action within the coverage of the insurance policy, irrespective of the merits of the claim." Essex, 1998 WL 812394, at *1; see National Union, 939 S.W.2d at 141. When reviewing the underlying pleadings, courts must focus on the factual allegations pled rather than on the legal theories alleged. See Merchants, 939 S.W.2d at 141. "Those allegations are to be considered `without reference to the truth or falsity of such allegations.' "King v. Dallas Fire Ins. Co., 85 S.W.3d 185, 191 (Tex.2002). "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." Lafarge Corp. v. Hartford Casualty Ins. Co., 61 F.3d 389, 393 (5th Cir.1995).

The insured bears the initial burden of showing that there is coverage, while the insurer bears the burden of proving the applicability of any exclusions in the policy. See VIC, 143 F.3d at 193. Once the insurer has proven that an exclusion applies, the burden shifts back to the insured to show that the claim falls within an exception to the exclusion. See id.

It is well established that insurance policies are to be strictly construed in favor of the insured in order to avoid exclusion of coverage. American Guarantee and Liability Ins. Co. v. Shel-Ray Underwriters, Inc., 844 F.Supp. 325, 329 (S.D.Tex.1993) (citing Puckett v. U.S. Fire Ins. Co., 678 S.W.2d 936, 938 (Tex.1984)). Likewise, courts resolve all doubts regarding a duty to defend in favor of the duty. See King v. Dallas Fire Ins. Co., 85 S.W.3d 185, 187 (Tex.2002).

B. Did the pleading allege "property damage" or "bodily injury" during the policy period?

The CGL policy in this case "applies to `bodily injury'<sup>4</sup> and `property damage'⁵ only if (1) the `bodily injury' or `property damage' is caused by an `occurrence'<sup>6</sup> that takes place in the `coverage territory'; and (2) the `bodily injury' or `property damage' occurs during the policy period." (Def's.App. at 51.) Liberty makes a two part argument regarding the occurrence of damage or injury. First, it asserts that there is no damage or injury alleged to have occurred within the policy period, because under a "manifestation" trigger,⁷ the manifestation of the injury or damage occurred after the expiration of the policy. Second, Liberty asserts that even if an "exposure" trigger⁸ is used, the pleading did not assert that any exposure to mold during the policy period caused injury or damage. Thus, the Court must determine first whether the "exposure" or "manifestation" trigger applies, and then under that trigger, whether the pleadings alleged damage or injury⁹ during the policy period.

1. When does damage occur?

The Fifth Circuit has ruled that property damage claims under liability insurance are subject to a manifestation trigger under Texas law. Guaranty Nat. Ins. Co. v. Azrock Industries, Inc., 211 F.3d 239, 248 (5th Cir.2000); American Home Assur. Co. v. Unitramp, 146 F.3d 311, 313 (5th Cir.1998); see Cullen/Frost Bank of Dallas v. Commonwealth Lloyd's Ins. Co., 852 S.W.2d 252, 257 (Tex.App.-Dallas 1993, writ denied); Dorchester Development Corp. v. Safeco Ins. Co., 737 S.W.2d 380, 383 (Tex.App.-Dallas 1987, no writ). The Azrock court stated that it was constrained to follow Texas law in holding that property damage due to asbestos was subject to a manifestation trigger. Azrock, 211 F.3d at 248. The manifestation of damage is when "the condition becomes capable of being easily perceived or recognized." Id. at 247; Unitramp, 146 F.3d at 314. Mathews urges in its response that the Court nonetheless apply an exposure trigger based on the holding in Pilgrim Enterprises, Inc. v. Maryland Casualty Co., 24 S.W.3d 488, 497-98 (Tex.App. — Houston [1st Dist.] 2000, no pet.), a case decided after the Fifth Circuit's decision in Azrock.

In Pilgrim, the Houston Court of Appeals, First District, decided what constituted an "occurrence" in a CGL policy where property damage was allegedly due to perchloroethylene ("PCE") ground contamination. Pilgrim Enterprises ("Pilgrim"), a dry cleaning business, had been covered by a CGL policy issued by Maryland Casualty ("Maryland") from 1981-1985. Pilgrim, 24 S.W.3d 488, 490. In 1994, years after the policy had expired, Pilgrim discovered the PCE contamination through soil testing and reported it to the TNRCC. Id. Surrounding property owners then sued Pilgrim for property damage due to exposure to PCE that was dumped before and during the policy period. Id. Pilgrim filed suit against Maryland seeking defense under the policy. Id. Maryland alleged that there was no "occurrence" because no property damage was manifest during the coverage period. Id. at 495.

The policy in that case covered property damage that resulted from an "occurrence," defined as "an accident, including continuous or repeated exposure to conditions, which...