Northfield Ins. Co. v. Loving Home Care, Inc.

• Decision Date: 22 March 2004
• Docket Number: No. 02-21254.,02-21254.
• Parties: NORTHFIELD INSURANCE COMPANY, Plaintiff-Counter Defendant-Appellant-Cross-Appellee, v. LOVING HOME CARE, INC.; Sheila Martha Daniels; Ronnie Randall Daniels, Defendants-Appellees, William Maurice Barrows, Individually, and as Heir and Legal Representative of Blanca Lillian Barrows, Deceased; Catherine Celmer Barrows, Individually and as Heir and Legal Representative of Bianca Lillian Barrows, Deceased, Defendants-Counter-Claimant-Appellees-Cross-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 523

363 F.3d 523

NORTHFIELD INSURANCE COMPANY, Plaintiff-Counter Defendant-Appellant-Cross-Appellee, v. LOVING HOME CARE, INC.; Sheila Martha Daniels; Ronnie Randall Daniels, Defendants-Appellees, William Maurice Barrows, Individually, and as Heir and Legal Representative of Blanca Lillian Barrows, Deceased; Catherine Celmer Barrows, Individually and as Heir and Legal Representative of Bianca Lillian Barrows, Deceased, Defendants-Counter-Claimant-Appellees-Cross-Appellants.

No. 02-21254.

United States Court of Appeals, Fifth Circuit.

March 22, 2004.

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E. Thomas Bishop, Michael Anthony Hummert, Alexander Nelson Beard (argued), Bishop & Hummert, Dallas, TX, for Northfield Ins. Co.

Michael Y. McCormick, Anthony Edward Spaeth (argued), McCormick, Hancock & Newton, Houston, TX, for Defendants-Appellees.

Joe Mac Roden (argued), Rusty Hardin & Associates, Houston, TX, for William and Catherine Barrows.

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

Before REAVLEY, DAVIS and DeMOSS, Circuit Judges.

DeMOSS, Circuit Judge:

Plaintiff-Counter-Defendant-Appellant-Cross-Appellee Northfield Insurance Co. ("Northfield") seeks reversal of the district court's final judgment that declared Northfield had a duty to defend Defendants-Appellees Loving Home Care, Inc. ("LHC") and Sheila and Ronnie Daniels (the "Daniels") under the commercial professional liability ("CPL") part of the insurance policy issued to LHC by Northfield, in the underlying tort suit by Defendants-Counter-Claimants-Appellees-Cross-Appellants William and Catherine Barrows (the "Barrows") against LHC and the Daniels. The Barrows cross-appeal, arguing this Court has no jurisdiction to review the district court's decision not to determine Northfield's duty to indemnify LHC and the Daniels at this time, and if there is jurisdiction, that such duty is properly nonjusticiable at this time. Because we find the district court properly concluded Northfield owed LHC and the Daniels a duty to defend in the underlying tort suit filed against them by the Barrows, and that Northfield's duty to indemnify LHC and the Daniels is presently nonjusticiable, we AFFIRM the decision of the district court.

BACKGROUND

This appeal stems from a dispute about the duty of an insurer to defend its insured in an underlying negligence suit in Texas state court. The Daniels ran LHC, a business that provided nannies for in-home child care. Celia Giral ("Giral") was employed by LHC and worked as a nanny for the Barrows. On October 13, 1997, Giral was caring for the Barrows' baby daughter, Bianca, when Bianca was fatally injured. Bianca died at the hospital on the evening of October 14, 1997. The Harris County coroner ruled Bianca's death a homicide, as the autopsy findings noted that Bianca's injuries included multiple skull fractures, brain hemorrhages, and blood behind the eyes. The cause of death listed was "cranio-cerebral injuries due to blunt force trauma of the head." On May 22, 1998, a Texas state court jury found Giral guilty of first-degree felony injury to a child in the death of Bianca Barrows; Giral was sentenced to seven years in prison.

The Barrows filed the underlying suit against several parties, including LHC and the Daniels. The Barrows' Third-Amended Petition, their live petition, stated in part:

On October 14, 1997, Bianca died at the age of 3-½ months. Bianca's fatal injuries were proximately caused by the negligence of Celia Giral, a nanny from Defendant Loving Home Care, Inc. Giral negligently dropped Bianca, and/or negligently shook Bianca, causing severe head injuries that resulted in the infant's death. In the alternative, Plaintiffs would show that Giral was reckless and/or criminally negligent as defined by Texas Penal Code Sec. 6.03.

On September 9, 1997, Cathy Barrows had signed a six-month Service Agreement, under which Mrs. Barrows agreed to pay $377.00 per week to Loving Home Care for Celia Giral, a Class A caregiver. This Service Agreement stated, "All in-home care providers shall be employees of Loving Home Care and will at all times remain subject to the supervision of Loving Home Care." [incorporation by reference omitted].

Celia Giral was the nanny provided by Loving Home Care, Inc. to care for Bianca. Loving Home Care, Inc. entered a written employment agreement with Celia Giral dated September 17, 1997. [incorporation by reference omitted]....

On Wednesday, September 17, 1997, Celia Giral began working for the Barrows, "caring" for their infant Bianca. On Monday, October 13, 1997, Mrs. Barrows left Bianca with Giral and drove to work. When Mrs. Barrows left Bianca with Giral, Bianca was awake, active, smiling, and giggling. Mrs. Barrows arrived at work at approximately 8:15 a.m. At approximately 8:45 a.m., Mrs. Barrows received a telephone call from Giral. Giral told Mrs. Barrows that she had to call 911 because Bianca would not wake up. A paramedic then got on the phone and told Mrs. Barrows that Giral claimed to have fallen while carrying the baby. The paramedic told Mrs. Barrows that they were going to take Bianca to Hermann Hospital.

. . .

The occurrence, proximately caused by the negligence of Defendants, caused severe bodily injury to Bianca, that resulted in her death. At the hospital emergency room, Bianca was examined by doctors who discovered Bianca's skull was fractured, her brain was hemorrhaging, and she had blood behind her eyes. Giral claimed to investigators that she had accidently dropped the infant, then shook her in an attempt to revive her. Giral therefore admitted conduct that failed to meet the standard of care of an ordinarily prudent person acting under the same or similar circumstances, which therefore constituted negligence, and was the proximate cause of the occurrence and Bianca's bodily injury and death.

The Barrows had amended their petition to remove all allegations relating to Giral's criminal conviction and the intentional nature of her behavior. At the time of Bianca's death, LHC was covered by a two-part insurance policy (including both commercial general liability, "CGL," and CPL coverage) issued by Northfield. Under the terms of the policy, LHC and the Daniels requested defense and indemnification from Northfield in the underlying action.

Northfield defended under a reservation of rights, filing a declaratory judgment action in district court against LHC, the Daniels, and others. In the course of the declaratory judgment action, Northfield argued that it was not obligated to defend or indemnify LHC and the Daniels in the underlying action because of various exclusions in the policy. In particular, in Northfield's motion for summary judgment, it argued it had no duty to defend or indemnify LHC and the Daniels under the CGL part of the policy because the "designated professional services" exclusion barred coverage for damages "due to the rendering or failure to render any professional service." Northfield also argued that it had no duty to defend or indemnify LHC and the Daniels under the CPL part of the policy, which provided coverage for damages "because of a negligent act, error or omission in the rendering of or failure to render professional services," because of two exclusions relating to "criminal acts" and "physical/sexual abuse." The criminal acts exclusion stated that coverage would not apply to "[a]ny damages arising out of any dishonest, fraudulent, criminal or malicious act or omission of any insured or `employee.'" The physical/sexual abuse exclusion stated that coverage would not apply to "any damages arising out of" the following:

1. The actual, alleged, or threatened physical abuse, sexual abuse or molestation by anyone.

2. The investigation, hiring, training, placement, supervision, or retention of anyone who engages or has engaged in physical abuse, sexual abuse or molestation. This endorsement applies whether damages arise from an act or failure to act.

3. The reporting of or failure to report to authorities any physical abuse, sexual abuse, or molestation.

The district court initially granted Northfield's motion for summary judgment in its entirety, ruling that the professional services exclusion applied so as to preclude coverage under both parts of the policy. LHC, the Daniels, and the Barrows then filed motions for reconsideration of the summary judgment, pointing out that the professional services exclusion only applied to the CGL part of the policy. The district court recognized its error and granted the motions for reconsideration as to the CPL part of the policy but affirmed its ruling as to Northfield having no duties under the CGL part. The district court ultimately determined that the criminal acts and physical/sexual abuse exclusions did not apply so as to preclude coverage and a duty to defend under the CPL part. The court entered its declaratory judgment on October 8, 2002, which ordered that Northfield has a duty to defend LHC and the Daniels. The Barrows then filed a motion to amend the judgment, requesting the district court delete the phrase "This is a final judgment" because the duty-to-indemnify issue was still before the court. The district court denied the motion and dismissed the duty-to-indemnify issue without prejudice. Northfield timely appealed, and the Barrows cross-appealed.

DISCUSSION

This Court reviews whether an insurer has a duty to defend its insured in an underlying suit as a de novo question of law. Guar. Nat'l Ins. Co. v. Vic Mfg. Co., 143 F.3d 192, 193 (5th Cir.1998). Under Texas law, which the parties agree governs this diversity case, the duty to defend and the duty to indemnify are distinct and separate duties. See King v. Dallas Fire Ins. Co., 85 S.W.3d 185, 187 (Tex.2002) (citation omitted). The duty to defend is broader than the duty to indemnify. Am. States Ins. Co. v. Bailey, 133 F.3d 363, 368 (5th Cir.1998) (applying Texas law).

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