National Union Fire Ins. v. Puget Plastics Corp.

• Decision Date: 23 June 2008
• Docket Number: No. 06-41619.,06-41619.
• Citation: 532 F.3d 398
• Parties: NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PENNSYLVANIA, Plaintiff-Appellant, v. PUGET PLASTICS CORP.; Puget Plastics Corporation SA DE CV, Defendants-Appellees, Microtherm, Inc., Intervenor Plaintiff-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

532 F.3d 398

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PENNSYLVANIA, Plaintiff-Appellant, v. PUGET PLASTICS CORP.; Puget Plastics Corporation SA DE CV, Defendants-Appellees Microtherm, Inc., Intervenor Plaintiff-Appellee.

No. 06-41619.

United States Court of Appeals, Fifth Circuit.

June 23, 2008.

Jeffrey Taylor Nobles, David A. Clark (argued), Jeffrey R. Parsons, Beirne, Maynard & Parsons, Houston, TX, Robert Sheppard Marshall, Mary Frances Licari, Bates & Carey, Chicago, IL, for Plaintiff-Appellant.

Steve A. Bryant (argued), Steve A. Bryant & Associates, Denman Heard, Justin Ryan Goodman, Heard, Robins, Cloud & Lubel LLP, Houston, TX, Edward Michael Rodriguez, Rodriguez & Nicolas, Brownsville, TX, for Puget Plastics Corp.,

Puget Plastics Corp. SA DE CV and Microtherm, Inc.

Appeal from the United States District Court for the Southern District of Texas.

Before JOLLY, BARKSDALE and BENAVIDES, Circuit Judges.

BENAVIDES, Circuit Judge:

A jury found that Defendants-Appellees Puget Plastics Corp. and Puget Plastics Corp. SA DE CV (collectively, "Puget") knowingly violated the Texas Deceptive Trade Practices Act ("DTPA") in their business dealings with Intervenor Plaintiff-Appellee Microtherm, Inc. ("Microtherm"). In this subsequent coverage action, Puget and Microtherm (collectively, "Appellees") seek indemnification from National Union Fire Insurance Co. ("National Union"), Puget's insurer. After both Appellees and National Union moved for summary judgment, the district court granted in part summary judgment for Appellees and denied summary judgment for National Union. National Union appealed.¹ For the reasons below, we AFFIRM.

I.

Microtherm manufactures the Seisco — a compact, tankless water heater that instantaneously heats water upon demand.² One of its main components is a water chamber made from plastic manufactured by DuPont. In 2000, Puget made 5,000 water chambers for Microtherm. Because Puget knowingly flouted DuPont's recommended temperature guidelines, approximately 800 of these water chambers later ruptured. Appellees allege that, in many cases, the ruptures caused water damage to the water heaters' circuit boards, making the water heaters inoperable. Moreover, some catastrophic failures purportedly resulted in severe damage to customers' homes and businesses.

Microtherm subsequently brought suit against Puget under the DTPA in Texas state court. After a lengthy trial, the jury found against Puget, concluding that Puget had knowingly: (1) "engaged in false, misleading or deceptive acts or practices"; (2) "engaged in an unconscionable action or course of action"; and (3) "failed to comply with a warranty." The jury awarded Microtherm $22,340,000 in damages for lost profits, the diminution in the company's value due to its damaged reputation, and the costs of repairing and replacing the damaged water heaters.

After the state court entered judgment, Microtherm, Puget, and Puget's primary insurer entered into a post-judgment mediation. Disclaiming coverage, National Union, Puget's commercial umbrella insurer, refused to participate. Under Puget's policy ("Policy"), National Union is liable for sums Puget becomes legally obligated to pay because of "property damage" caused by an "occurrence."³ The Policy defined the term "occurrence" 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." (emphasis added). National Union contended that Puget was not entitled to coverage because: (1) the damages the jury awarded did not stem from an occurrence; and (2) the damages for which Puget seeks coverage are not sums it became legally obligated to pay because of property damage.

Despite National Union's absence, the mediation continued. The mediation concluded when Puget and its primary insurer agreed to a settlement with Microtherm that included: (1) a payment of $2,000,000 from Puget's parent company, (2) a payment of $1,000,000 from the primary insurer, and (3) an assignment of Puget's rights under its policy with National Union.

Seeking a declaratory judgment against Puget, National Union filed suit in federal court. Puget counterclaimed, seeking coverage, and Microtherm intervened. All parties subsequently moved for summary judgment. On September 6, 2006, the district court denied National Union's motion for summary judgment and granted in part and denied in part summary judgment for the Appellees.⁴ National Union now appeals, claiming that the jury's DTPA findings barred coverage and that the district court erred in concluding that it could consider evidence outside of these findings.

II.

We review a grant of summary judgment de novo, applying the same standard as the district court. Hanks v. Transcon. Gas Pipe Line Corp., 953 F.2d 996, 997 (5th Cir.1992). Summary judgment is proper "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). "The party seeking summary judgment carries the burden of demonstrating that there is an absence of evidence to support the non-moving party's case." Exxon Corp. v. Burglin, 4 F.3d 1294, 1297 (5th Cir.1993). We review all evidence in the light most favorable to the nonmoving party. Id.

III.

In Texas, the insured carries the burden to establish the insurer's duty to indemnify by presenting facts sufficient to demonstrate coverage. W. Alliance Ins. Co. v. N. Ins. Co. of N.Y., 176 F.3d 825, 831 (5th Cir.1999). Under the Policy, Puget is entitled to coverage for sums it becomes legally obligated to pay because of "property damage" that is "caused by an occurrence." National Union contends that the jury findings in the underlying case preclude Appellees from showing that Puget's misconduct constitutes an occurrence. This argument lacks merit.

The Policy defines the term "occurrence" 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." (emphasis added). In other words, an insured's conduct is an occurrence if it: (1) qualifies as an accident and (2) results in harm that the insured did not expect or intend. Because the Policy does not define the term "accident," we must interpret it in accordance with its "generally accepted or commonly understood meaning." See Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1, 8 (Tex.2007). In Texas, 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. See id. at 8-9. In sum, Appellees 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.⁵

National Union argues that Puget's actions cannot constitute an occurrence because the jury found that Puget knowingly violated the DTPA.⁶ This argument is unavailing because all we can definitively conclude from the jury's findings is that Puget's actions were deliberate. The jury made no determination as to: (1) whether Puget intended or expected the harm Microtherm ultimately suffered or (2) whether this harm was highly probable. Moreover, we cannot presume that Puget intended Microtherm's injuries because knowing violations of the DTPA are not intentional torts. See Pope v. Rollins Protective Serv. Co., 703 F.2d 197, 201 (5th Cir.1983) ("One of the primary reasons for the enactment of the DTPA was to provide consumers with a remedy for deceptive trade practices without the burdens of proof and numerous defenses encountered in a common law fraud or breach of warranty action."); see also Concorde Limousines, Inc. v. Moloney Coachbuilders, Inc., 835 F.2d 541, 547 (5th Cir.1987) (noting that it is more difficult to recover under a fraud claim than a DTPA claim in part because plaintiffs must establish proximate cause to demonstrate fraud but need only establish producing cause to demonstrate a DTPA violation). In this case, the evidence shows that, while Puget knowingly molded the water chambers using a lower melt temperature than that recommended by DuPont, it attempted to compensate by raising the mold temperature. An expert testified at trial that she believed this adjustment helped reinforce the integrity of the chambers. This combined evidence creates a genuine issue of material fact as to whether Puget expected the chambers to rupture, or whether the ruptures were highly probable. See Ohio Cas. Ins. Co. v. Terrace Enter., Inc., 260 N.W.2d 450, 452-53 (Minn.1977) (finding an "occurrence" when an insured knowingly ignored an expert's recommendations but took other precautions that it erroneously thought would compensate). In sum, National Union would have us find that any knowing misconduct cannot constitute an accident — however improbable the damages turn out to be. Because Lamar Homes precludes this result, we reject it here. Accordingly, the jury's findings do not bar Appellees from establishing an occurrence as a matter of law.

IV.

To recover under the Policy, Appellees must also prove that the damages they demand resulted from "property damage."⁷ In this coverage action, Appellees seek indemnity for consequential damages — Microtherm's lost profits and diminution in value that resulted from the damage to its water heaters.⁸ National Union argues that the Policy simply does not cover consequential damages. This argument lacks merit. See Todd Shipyards Corp. v. Turbine Serv., Inc., 674 F.2d 401, 418,...