Nat'l Union Fire Ins. of Pittsburgh v. Puget Plastics Corp., Civil No. B-05-050

Citation735 F.Supp.2d 650
Decision Date25 August 2010
Docket NumberCivil No. B-05-050
PartiesNATIONAL UNION FIRE INSURANCE OF PITTSBURGH, PENNSYLVANIA, Plaintiff, v. PUGET PLASTICS CORPORATION; Puget Plastics Corporation S.A. de C.V.; and Wausau Business Insurance Company, Defendants.
CourtUnited States District Courts. 5th Circuit. United States District Courts. 5th Circuit. Southern District of Texas

Amy J. Collins, Jennifer R. Bergstrom, Robert S. Marshall, Bates & Carey, LLP, Chicago, IL, Eduardo Roberto Rodriguez, Rodriguez & Nicolas, L.L.P., Jaime Arturo Saenz, Colvin Chaney et al., Brownsville, TX, James B. Friderici, Delaney, Wiles, Hayes, Gerety, Ellis & Young, Inc., James N. Leik, Perkins Coie, LLP, Anchorage, AK, Alexander G. Calfo, Yukevich Calfo & Cavanaugh, Los Angeles, CA, Keith Herman Odenweller, Cooper Industries, Houston, TX, for Plaintiff.

Justin Ryan Goodman, Heard Robins et al., Steve A. Bryant, Steve A. Bryant & Associates, Houston, TX, for Defendants.

Wausau Business Insurance Company, pro se.

MEMORANDUM OPINION AND ORDER DENYING MOTION FOR NEW TRIAL AND MOTION TO ALTER OR AMEND THE JUDGMENT

ANDREW S. HANEN, District Judge.

Pending before the Court is the Defendant Puget Plastics Corporation ("Puget") and Intervenor Microtherm's Motion for a New Trial or to Alter or Amend the Judgment (Docket No. 339).1 For the reasons set forth below, that motion will be denied.

I. BACKGROUND

This Court has previously outlined the facts of this case in great detail. See Nat'l Union Fire Ins. Co. v. Puget Plastics Corp. (" Puget II"), 649 F.Supp.2d 613 (S.D.Tex.2009) (Docket No. 332). The facts essential to the pending motion are in summary the following. Microtherm manufactured the Seisco tankless water heater during times pertinent to this case. Id. at 617. During most of the year 2000, Puget manufactured plastic water chambers which Microtherm installed into its Seisco water heaters. Id. These chambers began to fail and leak water in April of 2001, and in 2002, Microtherm filed suit against Puget and other component part manufacturers in Texas state court alleging economic losses that resulted from, inter alia, the failure of those component parts. Id. According to Microtherm, Puget had intentionally under-heated the plastic chambers during the manufacturing process, resulting in leaky chambers which in turn damaged Microtherm's reputation and profits. A Texas jury agreed with Microtherm and found that Puget had engaged in false, misleading, or deceptive acts or practices; engaged in unconscionable action; failed to comply with warranties; engaged in negligent misrepresentation; and committed fraud. Id. at 617-18. After forgoing the fraud findings, Microtherm obtained a judgment against Puget in the amount of $36,081,807. Id. at 618. Verdicts were also brought back against other manufacturers in the following amounts: (1) against Dana Corporation $27,600,000 in actual damages, $250,000 in additional damages, $3,308,712.33 in prejudgment interest, and $12,463,485 in reasonable andnecessary attorneys' fees, and (2) against United Plastics Group $17,450,000 in actual damages, $600,000 in additional damages, $890,136.49 in prejudgment interest, and $7,576,055 in reasonable and necessary attorneys' fees. Id. at 617.

From July 1, 1999 to July 1, 2002, Puget was covered by an umbrella policy (the "Policy" or the "National Union Policy") issued by National Union to Arctic Slope, Puget's parent company. Id. at 618. Puget was an additional insured under the Policy. Four days after the jury verdict in favor of Microtherm in Texas state court, National Union filed the present action in this Court seeking a declaration that it had no duty to defend or indemnify Puget for the conduct giving rise to the state court action. Id. at 616-17. Meanwhile, Microtherm and Puget entered into a settlement agreement through which Microtherm assumed Puget's rights as an insured party under the National Union Policy. Id. at 619. After this Court granted a partial summary judgment and an interim appeal which clarified certain issues, and after holding a trial to determine National Union's duty to defend and duty to indemnify, and a trial in which Microtherm intervened, this Court held that National Union did not have a duty to defend or indemnify Puget. Id. at 656. Puget/Microtherm timely filed a motion for new trial or, in the alternative, to alter or amend the judgment (Docket No. 339).

II. APPLICABLE LAW

Following a bench trial, a court may grant a new trial "for any reason for which a rehearing has heretofore been granted in a suit in equity in federal court." Fed. R. Civ. P. 59(a)(1)(B). "Courts do not grant new trials unless it is reasonably clear that prejudicial error has crept into the record or that substantial justice has not been done, and the burden of showing harmful error rests on the party seeking the new trial." Sibley v. Lemaire, 184 F.3d 481, 487 (5th Cir.1999) (quoting Del Rio Distrib., Inc. v. Adolph Coors Co., 589 F.2d 176, 179 n. 3 (5th Cir.1979)).

Under Federal Rule of Civil Procedure 59(e), a party may file a motion to alter or amend a judgment. Fed.R.Civ.P. 59(e). Such a motion, in order to be granted, " 'must clearly establish either a manifest error of law or fact or must present newly discovered evidence' and 'cannot be used to raise arguments which could, and should, have been made before the judgement issued.' " Rosenzweig v. Azurix Corp., 332 F.3d 854, 863 (5th Cir.2003) (quoting Simon v. United States, 891 F.2d 1154, 1159 (5th Cir.1990)).

III. THERE WAS NO OCCURRENCE UNDER THE NATIONAL UNION POLICY.

Puget raises several arguments to support its motion for new trial, the first of which asserts that this Court erroneously concluded that Puget's conduct and the resulting damage did not constitute an accident, and thus was not an occurrence, under the Policy. See Puget's Motion, at 4. In relevant part, the Policy provides that National Union will pay sums in excess of the retained limit that Puget became legally obligated to pay arising from property damage caused by an occurrence. See Notice of Filing of Petition For Permission to Appeal, Ex. 1C (hereinafter "The Policy"). "Occurrence" is defined in the Policy as "an accident, including continuous or repeated exposure to conditions, which results in Bodily Injury or Property Damage neither expected nor intended from the standpoint of the insured." The Policy at 5. The word accident is not defined in the Policy.

In its final judgment in this case, this Court found no accident had occurred and thus there was no "occurrence" under the Policy. This finding was, at least in part, based upon its analysis of Texas law and the dictates of the Fifth Circuit opinion in this case as to what constituted an accident. As part of that analysis the Court was called upon by the Fifth Circuit to determine whether damage incurred was "highly probable." Puget specifically objects to this Court's determination that whether the damage Microtherm suffered was "highly probable" is an objective question, not purely a subjective one, as Puget argues.

A. Reconsidering the Fifth Circuit's Interlocutory Opinion in this Case, this Court Concludes that it Did Not Err in Holding that No Accident Occurred Under the Policy.

Early on, one of the central issues in this case was whether a Texas jury's finding of a knowing violation of the Texas Deceptive Trade Practices Act ("DTPA") could ever constitute an "accident" under Texas insurance law. In response to the parties' motions for summary judgment, this Court issued an opinion holding that a knowing violation of the DTPA could constitute an "accident" and certified that holding, among others, to the Fifth Circuit Court of Appeals for immediate review (Docket No. 131). The Fifth Circuit affirmed this Court's conclusion in National Union Fire Insurance Co. v. Puget Plastics (" Puget I "), 532 F.3d 398 (5th Cir.2008). In analyzing the meaning of "accident" under Texas law, the Fifth Circuit held that

deliberate acts may constitute an accident unless: (1) the resulting damage was "highly probable" because it was "the natural and expected result of the insured's actions," (2) "the insured intended the injury," or (3) the insured's acts constitute an intentional tort, in which case, the insured is presumed to have intended the injury. In sum, [Puget] cannot recover under the Policy if: (1) the injury to Microtherm was highly probable, (2) Puget intended or expected the injury inflicted on Microtherm, or (3) Puget committed an intentional tort.

Id. at 401-02 (quoting Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1, 8 (Tex.2007)) (emphasis added). This Court found that the insured committed intentional acts that resulted in damage that was highly probable as they were the natural and expected result of Puget intentionally under-heating the plastic used to manufacture the chambers used by Microtherm in its Seisco water heaters. This Court is bound to follow the dictates of the Fifth Circuit opinion rendered in this case, and, applying that reasoning to the facts of this present controversy, this Court finds that it did not err in holding that no accident occurred under the Policy.

1. Whether the Damage Microtherm Suffered was "Highly Probable" is to be Determined Using an Objective Standard.

Applying the three-part test articulated by the Fifth Circuit in Puget I, which it was bound to do, this Court found that Puget's conduct did not constitute an occurrence under the Policy because there was no accident. Puget II, 649 F.Supp.2d at 646. In a nutshell, this Court held that because a subjective "highly probable" standard would render the subjective "intended the injury" prong of the Fifth Circuit's non-occurrence test superfluous, the Fifth Circuit could not have intended a double or two-pronged subjective standard. Accordingly, this Court applied an objective "highly probable" standard. The Court also found this conclusion to be consistent with the various Texas cases addressingthe issue of what constitutes an "accident."

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