Nutmeg Ins. Co. v. Clear Lake City Water Authority

• Decision Date: 10 June 2002
• Docket Number: No. CIV.A. 01-0435.,CIV.A. 01-0435.
• Parties: NUTMEG INSURANCE COMPANY, Plaintiff, v. CLEAR LAKE CITY WATER AUTHORITY Defendant.
• Court: U.S. District Court — Southern District of Texas

229 F.Supp.2d 668

NUTMEG INSURANCE COMPANY, Plaintiff, v. CLEAR LAKE CITY WATER AUTHORITY Defendant.

No. CIV.A. 01-0435.

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

June 10, 2002.

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John H Marks, Jr, Locke Liddell & Sapp, Dallas, TX, for Nutmeg Insurance Company, plaintiff.

Barry Abrams, Ramon Gustave Viada, III, Abrams Scott et al, Houston, TX, William E Schweinle, Jr, William G Lowerre, Schweinle, Parish & Lowerre, PC, Houston, TX, for Clear Lake City Water Authority, defendant.

MEMORANDUM AND ORDER OF PARTIAL SUMMARY JUDGMENT

HARMON, District Judge.

Pending before the Court in the above referenced action seeking a declaration that Plaintiff Nutmeg Insurance Company ("Plaintiff" or "Nutmeg") owes no duty to defend or indemnify Defendant Clear Lake City Water Authority ("Clear Lake") in an underlying suit, Kirby Lake Development, Ltd., et al. v. Clear Lake City Water Authority, Case No.1998-58185, pending in the 113th Judicial District Court of Texas, Harris County, Texas, is Plaintiff's motion for partial summary judgment (instrument # 32). Nutmeg contends that the three insurance policies at issue do not cover intentional breaches of contract, as alleged in the underlying suit, and that exclusions within the policies also exclude coverage for the claims in that state court action.

STANDARD OF REVIEW

The movant seeking a federal summary judgment initially must inform the court of the basis for its motion and point out those portions of the pleadings, depositions, answers to interrogatories, and admissions on file that demonstrate the absence of a genuine issue of material fact and show that it is entitled to a 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 movant need not negate the opposing party's claims nor produce evidence showing an absence of a genuine factual issue, but may rely on the absence of evidence to support essential elements of opposing party's claims. International Assoc. of Machinists & Aerospace Workers, Lodge No. 2504 v. Intercontinental Mfg. Co., 812 F.2d 219, 222 (5th Cir.1987). The burden then shifts to the non-movant to set forth specific facts and competent summary judgment evidence to raise a genuine issue of material fact on each essential element of any claim on which he bears the burden of proof at trial. Fed. R.Civ.P. 56(c). The substantive law governing the suit identifies the essential elements of the claims at issue and therefore indicates which facts are material. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

The non-moving party may not rest on mere allegations or denials in its pleadings, but must produce affirmative evidence and specific facts. Anderson, 477 U.S. at 256-57, 106 S.Ct. 2505. It meets this burden only if it shows that "a reasonable jury could return a verdict for the non-moving party." Id. at 254, 106 S.Ct. 2505. A mere scintilla of evidence will not preclude granting of a motion for summary judgment. Id. at 252, 106 S.Ct. 2505.

All reasonable inferences must be drawn in favor of the non-moving party. Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587-88, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986)., citing United States v. Diebold, 369 U.S. 654, 655, 82 S.Ct. 993, 8 L.Ed.2d 176 (1962). Once the burden of proof has shifted to the non-movant, it "must do more that simply show that there is some metaphysical doubt as to the material facts." Id. at 586, 106 S.Ct. 1348. Instead it must produce evidence upon which a jury could reasonably base a verdict in its favor. Anderson, 477 U.S. at 249, 106 S.Ct. 2505. "[T]here is no issue for trial unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party. If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Id., 477 U.S. at 249-50, 106 S.Ct. 2505. Moreover the non-movant must "go beyond the pleadings and by its own affidavits or by depositions, answers to interrogatories and admissions on file, designate specific facts that show there is a genuine issue for trial." Webb v. Cardiothoracic Surgery Assoc. of North Texas, P.A., 139 F.3d 532, 536 (5th Cir.1998).

Unsubstantiated and subjective beliefs and conclusory allegations and opinions are not competent summary judgment evidence. Grimes v. Texas Dept. of Mental Health and Mental Retardation, 102 F.3d 137, 139-40 (5th Cir.1996); Forsyth v. Barr, 19 F.3d 1527, 1533 (5th Cir.), cert. denied, 513 U.S. 871, 115 S.Ct. 195, 130 L.Ed.2d 127 (1994); Topalian v. Ehrman, 954 F.2d 1125, 1131 (5th Cir.), cert. denied, 506 U.S. 825, 113 S.Ct. 82, 121 L.Ed.2d 46 (1992).

APPLICABLE LAW

In Texas, the rules of construction of contracts generally are applicable to insurance policies. Cicciarella v. Amica Mutual Ins. Co., 66 F.3d 764, 767-68 (5th Cir.1995), citing Barnett v. Aetna Life Ins. Co., 723 S.W.2d 663, 665 (Tex.1987). The court construes the contract of the insurance policy as a whole and gives effect to the intent of the parties as expressed in the instrument. Id. at 768. Whether the terms are ambiguous is a question of law for the court. Id. A contract is ambiguous only "when its meaning is uncertain and doubtful or it is reasonably susceptible of more than one meaning." Id., quoting Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983). Only if the court decides that the contract cannot be given a certain and definite legal meaning, i.e., that it is ambiguous, is there a question of fact for the jury. Id., citing Coker, 650 S.W.2d at 393-94. If there is no ambiguity found by the court, it must interpret the meaning and intent of the insurance policy from the four corners of the document without the aid of extrinsic evidence. Westchester Fire Ins. Co. v. Stewart & Stevenson Services, Inc., 31 S.W.3d 654, 658-59 (Tex.App. — Houston [1st Dist.] 2000), citing Carrabba v. Employers Cas. Co., 742 S.W.2d 709, 716 (Tex. App. — Houston [14th Dist.] 1987, no writ). When terms are defined in the policy, the policy's definitions control. Trinity Universal Insurance Co. v. Cowan, 945 S.W.2d 819, 823 (Tex.1997). Terms in a policy are given their ordinary and generally accepted meaning, unless there is an indication that the words were used in a technical or unusual sense. Jarvis Christian College v. National Union Fire Ins. Co. of Pittsburgh, Pa., 197 F.3d 742, 746 (5th Cir. 1999). Insurance policies are construed liberally in favor of the insured. Cicciarella, 66 F.3d at 768, citing Kelly Associates, Ltd. v. Aetna Cas. & Sur. Co., 681 S.W.2d 593, 596 (Tex.1984).

Texas applies the "eight corners" rule, i.e., comparison of the factual allegations of the underlying petition to the terms of the insurance policy only, to determine whether an insurer owes an insured a duty to defend, i.e., whether any part of the suit states a cause of action potentially covered by the policy. National Union Fire Ins. Co. v. Merchants Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex.1997); Lyons v. State Farm Lloyds and Nat. Cas. Co., 41 S.W.3d 201, 204 (Tex.App. — Houston [14th Dist.] 2001, writ denied). The petition's allegations are liberally interpreted and their truth presumed. Id. Where there is doubt whether the factual allegations state a cause of action that possibly falls within the scope of the policy's coverage, the doubt is resolved in favor of the insured. Heyden Newport Chem. Corp. v. Southern Gen. Ins. Co., 387 S.W.2d 22, 26 (Tex.1965).

Nevertheless, to determine if the factual allegations are covered by the policy, the allegations must be at least sufficiently specific to "create the degree of doubt which compels resolution of the issue for the insured." Merchants Fast Motor Lines, 939 S.W.2d at 142. The court should not imagine factual scenarios that might trigger coverage or read facts into the pleadings. Id.

If coverage is found for any part of a suit, the insurer must defend the entire suit. St. Paul Ins. Co. v. Tex. Dep't of Transp., 999 S.W.2d 881, 884 (Tex. App. — Austin 1999, pet. denied). If the petition alleges facts that are not covered by or that are excluded by the insurance policy, the insurer has no duty to defend. Fid. & Guar. Ins. Underwriters, Inc. v. McManus, 633 S.W.2d 787, 788 (Tex.1982).

The duty to defend and the duty to indemnify are distinct and separate. Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d 819, 821-22 (Tex.1997); Saint Paul Surplus Lines Ins. Co. v. Geo Pipe Co., 25 S.W.3d 900, 903 (Tex.App. — Houston [1st Dist.] 2000, remanded pursuant to settlement). As noted, the duty to defend arises when the plaintiff alleges facts that potentially support claims for which there is coverage under the insurance policy and does not depend on the ultimate truth or falsity of those factual allegations. Heyden Newport, 387 S.W.2d at 24; Saint Paul Surplus, 25 S.W.3d at 903. The focus is not on legal theories, but on the facts alleged. Saint Paul Surplus, 25 S.W.3d at 903, citing Maayeh v. Trinity Lloyds Ins. Co., 850 S.W.2d 193, 195 (Tex.App. — Dallas 1992, no writ).

The duty to indemnify arises from proven, adjudicated facts establishing liability in the underlying suit for damages that are covered by the policy in dispute. Cowan, 945 S.W.2d at 821; Hartrick v. Great American Lloyds Ins. Co., No. 01-99-00215-CV, 2001 WL 870072, *3 (Tex. App. — Houston [1st Dist.] Aug.2, 2001). Thus no legal determination of ultimate liability is necessary before an insurer is obligated to defend a suit, but the insurer need only indemnify after the insured has been adjudicated to be legally responsible, whether by judgment or settlement. Hartrick, 2001 WL 870072, *3; Collier v. Allstate County Mut. Ins. Co., 64 S.W.3d 54, 61-62 (Tex.App. — Fort Worth, 2001), citing Farmers Texas County Mut....