N. Am. Capacity Ins. Co. v. Colony Specialty Ins. Co.

• Citation: 273 F.Supp.3d 711
• Decision Date: 07 August 2017
• Docket Number: CIVIL ACTION NO. H–16–3371
• Parties: NORTH AMERICAN CAPACITY INSURANCE COMPANY, Plaintiff, v. COLONY SPECIALTY INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Southern District of Texas

273 F.Supp.3d 711

NORTH AMERICAN CAPACITY INSURANCE COMPANY, Plaintiff,

v.COLONY SPECIALTY INSURANCE COMPANY, Defendant.

CIVIL ACTION NO. H–16–3371

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

Signed August 7, 2017

Mariah Baker Quiroz, Ellen Lewis Van Meir, Thompson Coe et al., Dallas, TX, for Plaintiff.

John Charles Tollefson, Stephen A. Melendi, Tollefson Bradley Ball Mitchell, LLP, Dallas, TX, for Defendant.

MEMORANDUM AND ORDER

NANCY F. ATLAS, SENIOR UNITED STATES DISTRICT JUDGE

This insurance dispute is before the Court on the Motion for Summary Judgment [Doc. # 18] filed by Plaintiff North American Capacity Insurance Company ("NAC"), to which Defendant Colony Specialty Insurance Company ("Colony") filed a Response and Cross–Motion for Summary Judgment [Doc. # 20], NAC filed a Response to Colony's Motion and a Reply in support of its own Motion [Doc. # 21], and Colony filed a Reply in support of its Motion [Doc. # 22]. Having reviewed the record and the applicable legal authorities, the Court denies NAC's Motion and grants Colony's Motion.

I. BACKGROUND

Dolce Living Rosenberg, LLC ("Dolce") owns apartment complexes in Rosenberg, Texas. Pace Realty Corporation ("Pace") manages the properties for Dolce. On May 7, 2015, Ronald Burdick, a prospective tenant, was at one of Dolce's apartment complexes viewing apartments available for lease. Burdick fell from a golf cart operated by a Pace employee, and he subsequently died from his injuries. Burdick's wife and adult daughters sued Dolce, Pace, and the driver of the golf cart (the "Burdick Lawsuit"). Dolce was nonsuited, and the case ultimately settled.

The Apartment Management Agreement ("Management Agreement") between Dolce and Pace provides that "Owner [Dolce] agrees that Owner's insurance shall be primary without right of subrogation against Manager with respect to all claims, actions, damage, loss or liability in or about the Project." See Management Agreement, Exh. 1 to NAC's Motion, APP 4–5.

Dolce obtained a general liability policy from Certain Underwriters of Lloyds Syndicate ("Lloyds"), with a policy limit of $1 million ("Lloyds Policy"). Lloyds provided a defense in the Burdick Lawsuit, and it paid its policy limits as part of the settlement of that lawsuit.¹ Dolce is also an insured under a Commercial Liability Umbrella Policy ("Colony Umbrella Policy") issued by Colony to ARM Purchasing Group ("ARM"), with a policy limit of $10 million. As Dolce's real estate manager, Pace is an insured under the Lloyds and the Colony policies. The Colony Umbrella Policy contains an "other insurance" provision that reads:

This insurance is excess over, and shall not contribute with any of the other insurance, whether primary, excess, contingent or on any other basis. This condition will not apply to insurance specifically written as excess over this Coverage Part.

Colony Umbrella Policy, Exh. 4 to NAC's Motion, APP 112.

Pace independently obtained a Commercial General Liability Policy from NAC ("NAC Policy"), with a policy limit of $1 million.² The NAC Policy includes a Real Estate Property Managed endorsement that reads:

With respect to your liability arising out of your management of property for which you are acting as real estate manager this insurance is excess over any other valid and collectible insurance available to you.

See NAC Policy, Exh. 5 to NAC Motion, APP 213.

After NAC paid funds within its policy limits as part of the settlement of the Burdick Lawsuit, it filed this lawsuit against Colony. NAC argues that its insurance is excess and Colony has primary coverage for the balance of the Burdick Lawsuit settlement amount remaining after Lloyds paid its policy limits. Alternatively, NAC argues that it and Colony share coverage on a pro rata basis. NAC argues that, under either theory, Colony must reimburse NAC for some or all of the funds it paid in settlement of the Burdick Lawsuit. Colony argues that its insurance is excess and NAC has primary coverage. The parties filed cross-motions for summary judgment, which have been fully briefed and are now ripe for decision.

II. APPLICABLE LEGAL STANDARDS

A. Summary Judgment Standard

The Federal Rules of Civil Procedure provide for summary judgment where there are no genuine issues of material fact and the moving party "is entitled to judgment as a matter of law." See FED. R. CIV. P. 56(a). "[S]ummary judgment is appropriate where the only issue before the Court is a pure question of law." Kornman & Associates, Inc. v. United States , 527 F.3d 443, 450 (5th Cir. 2008). "The interpretation of an insurance policy's language presents a question of law." Progressive Gulf Ins. Co. v. Estate of Jones , 958 F.Supp.2d 706, 708 (S.D. Miss. 2013). When the parties file cross-motions for summary judgment, the Court must review "each motion independently, viewing the evidence and inferences in the light most favorable to the nonmoving party." Mid–Continent Cas. Co. v. Bay Rock Operating Co. , 614 F.3d 105, 110 (5th Cir. 2010).

B. Construction of Insurance Policies

Under Texas law, courts interpret insurance policies using the same rules that apply to contracts generally. See Potomac Ins. Co. of Ill. v. Jayhawk Med. Acceptance Corp. , 198 F.3d 548, 550 (5th Cir. 2000) (citing Barnett v. Aetna Life Ins. Co. , 723 S.W.2d 663, 665 (Tex. 1987) ). When interpreting an insurance policy, the Court's primary objective is to ascertain the parties' intent as expressed in the written document. See Mid–Continent Cas. Co. v. Swift Energy Co. , 206 F.3d 487, 491 (5th Cir. 2000) (citing Nat'l Union Fire Ins. Co. of Pittsburgh, Pa. v. CBI Indus., Inc. , 907 S.W.2d 517, 520 (Tex. 1995) ).

When considering multiple insurance policies, Texas law generally requires that the limits of primary policies be exhausted before an excess insurer becomes liable. See St. Paul Mercury Ins. Co. v. Lexington Ins. Co. , 78 F.3d 202, 209 & n.23 (5th Cir. 1996) (citing Emscor Mfg., Inc. v. All. Ins. Group , 879 S.W.2d 894, 903 (Tex. App.–Houston [14th Dist.] 1994, writ denied) ). The liability of an insurer with primary coverage attaches upon the happening of the "occurrence" that gives rise to the liability. See id. An insurer providing excess coverage is generally only liable for the amount above what might be collected from primary insurance. See id. A primary policy and an excess insurance policy do not cover the same risk but, instead, cover "separate and clearly defined layers of risk." See id.

Conflicts involving the priority of insurance policies may arise when "more than one policy covers the same insured and each policy has an ‘other insurance’ clause which restricts its liability by reason of the existence of other coverage." Hardware Dealers Mut. Fire Ins. Co. v. Farmers Ins. Exch. , 444 S.W.2d 583, 586 (Tex. 1969). The "dominant consideration" is the rights of the insured and, therefore, the following rule is applied under Texas law to reconcile such conflicts:

When, from the point of view of the insured, she has coverage from either one of two policies but for the other, and each contains a provision which is reasonably subject to a construction that it conflicts with a provision in the concurrent insurance, there is a conflict in the provisions .... [This conflict is] solved by ignoring the two offending provisions.

Id. at 589.

III. ANALYSIS

An umbrella policy is designed to cover situations where primary insurance policies are exhausted without covering the full loss. See Carrabba v. Employers Cas. Co. , 742 S.W.2d 709, 714 (Tex. App. –Houston [14th Dist.] 1987, no writ). "Umbrella policies are therefore regarded as true excess over and above any type of primary coverage including excess provisions arising from primary policies." Id. at 715.

As the parties agree, the general rule is that a primary insurance policy must be exhausted before an umbrella, or excess, insurance policy is triggered. See id. ; St. Paul Mercury Ins. Co. v. Lexington Ins. Co. , 78 F.3d 202, 209 (5th Cir. 1996) ("Texas law dictates that primary policies' limits must be exhausted before excess insurers become liable"). In this case, it is undisputed that the NAC Policy is a primary policy and not "a true excess policy." See NAC Motion, p. 1. NAC argues that its Policy is "excess in nature" or "excess by coincidence." See id. at 10. "True excess policies, which require the policyholder to obtain primary insurance in addition to the excess policy, are only triggered when that additional insurance is exhausted." Nat'l Cas. Co. v. W. World Ins. Co. , 669 F.3d 608, 617 n.6 (5th Cir. 2012). Policies that are "excess by coincidence," on the other hand, do not require the insured to obtain other coverage and "only limit the insurer's responsibilities when the policyholder happens to have another policy covering the same incident." Id. As a general rule, when a "true excess" policy and an "excess by coincidence" policy cover the same loss, coverage under the "true excess" policy is not triggered until the limits of the "excess by coincidence" policy are exhausted. See Carrabba , 742 S.W.2d at 715 ; Scottsdale Ins. Co. v. Steadfast Ins. Co. , 2017 WL 661520, *6 (S.D. Tex. Feb. 17, 2017) (Rosenthal, J.).

Notwithstanding this general rule, NAC argues that the Colony Umbrella Policy is not an excess policy as to the NAC Policy and, therefore, the Colony Umbrella Policy must be exhausted before NAC's "excess by coincidence" Policy is triggered. The record and applicable case law fail to support NAC's argument that its Policy is excess to the Colony Umbrella Policy.

A. NAC Policy—"Excess by Coincidence"

It is undisputed that the NAC Policy is generally a primary policy. NAC notes that its Policy contains a Real Estate Property Managed endorsement that reads:

With respect to your liability arising out of your management of property for which you are acting as real estate manager this insurance is excess over any other valid and collectible insurance available to you.

See NAC Policy, Exh....