Safeco Ins. Co. of Indiana v. Hiles

• Decision Date: 09 August 2011
• Docket Number: Civil Action No. 3:10-CV-1289-D
• Parties: SAFECO INSURANCE COMPANY OF INDIANA, Plaintiff-counterdefendant, v. MARCUS HILES, Defendant-counterplaintiff.
• Court: U.S. District Court — Northern District of Texas

SAFECO INSURANCE COMPANY OF INDIANA, Plaintiff-counterdefendant,

v.MARCUS HILES, Defendant-counterplaintiff.

Civil Action No. 3:10-CV-1289-D

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION

August 9, 2011

MEMORANDUM OPINIONAND ORDER

In this litigation involving insurance coverage questions under a homeowners policy and related extra-contractual claims, the court holds that the insurer did not have a duty to defend or indemnify the insured for lawsuits that alleged business-related claims, in which the insured was not a defendant, or that the insured did not tender to the insurer. The court also concludes that the insured cannot recover based on theories of waiver and estoppel or based on extra-contractual claims. Accordingly, the court grants the insurer's motion for summary judgment, denies the insured's motion for summary judgment, and enters judgment in favor of the insurer.

I

Plaintiff-counterdefendant Safeco Insurance Company of Indiana ("Safeco") insured defendant-counterplaintiff Marcus Hiles ("Hiles") under a homeowners insurance policy ("the Policy") for three consecutive one-year periods, beginning August 25, 2007 and endingAugust 25, 2010.¹ The Policy provided Hiles $500,000 in personal liability coverage per occurrence. In August 2009 Hiles tendered to Safeco two lawsuits pending in Dallas County, Texas, and requested that Safeco defend and indemnify him under the terms of the Policy. These lawsuits were Anderton v. Cawley, No. 08-05426-K (192nd Dist. Ct., Dallas County, Tex.) ("Anderton"), and Cascade Properties, Ltd. v. Western Rim Investors 2006-4, L.P., No. 08-06533-E (101st Dist. Ct., Dallas County, Tex.) ("Cascade"). In support of his request, Hiles attached the third amended petition and third supplemental petition in Anderton, and the first amended petition in Cascade. Hiles asserts in his answer in the instant litigation that he tendered two additional lawsuits to Safeco: Western Rim Investors 2006-3, L.P. v. Cascade Properties, Ltd., No. 08-1328-B (114th Dist. Ct., Smith County, Tex.), and J&S Drywall & Supply Co. v. Mansions Custom Homes, III, L.P., No. 09-1895-C (241st Dist. Ct., Smith County, Tex.) (collectively, "the additional lawsuits"). Safeco maintains that Hilesnever tendered the additional lawsuits.

Hiles is a named defendant in Anderton. Lew Anderton ("Anderton") sued Hiles and several others, alleging, inter alia, numerous business-related claims. Safeco characterizes Anderton as arising out of a dispute between business partners relating to the development of a residential community in Tyler, Texas. The third amended petition was the live pleading at the time Hiles tendered Anderton to Safeco. In that petition, Anderton asserts four causes of action against Hiles: tortious interference with existing contracts, aiding and abetting breach of fiduciary duty, defamation, and conspiracy.

Hiles also tendered Cascade to Safeco in August 2009. Hiles is not a named defendant in Cascade. Safeco maintains that the Cascade defendants are business entities owned or controlled by Hiles. In Cascade plaintiff Cascade Properties, Ltd. ("Cascade") sued Western Rim Investors 2006-4, L.P., Western Rim Investors 2007-1, L.P., Cascades of Tyler Joint Venture, LLP, and Cascades of Tyler Homes Joint Venture, LLP (collectively, "Hiles Entities") alleging various business-related causes of action. According to Safeco, the controversy in Cascade arose out of two agreements that the Hiles Entities allegedly entered into with Cascade. The agreements allegedly granted Cascade sole and exclusive management authority for all sales activities related to the residential development at issue in Anderton.

Anderton and Cascade were consolidated (the "consolidated case") five days afterHiles tendered them to Safeco for defense and indemnification.² Shortly thereafter, the plaintiffs in the consolidated case filed a fourth amended petition in which they asserted only a defamation claim against Hiles. Later that month, the plaintiffs filed a fifth amended petition, in which they asserted only a defamation claim against Hiles. In February 2010 the plaintiffs filed a sixth amended petition in which they asserted claims against Hiles for aiding and abetting breach of fiduciary duty, civil conspiracy, tortious interference, bad faith pleading, and defamation. In March 2010 the plaintiffs filed a seventh amended petition in which they asserted against Hiles claims for aiding and abetting breach of fiduciary duty and defamation. In 2010 Anderton nonsuited, i.e., voluntarily dismissed, the defamation claim against Hiles.

Hiles maintains that he, individually and on behalf of his companies, entered into a confidential settlement agreement and release with another defendant, William Cawley ("Cawley"), pursuant to which Hiles is obligated to transfer $1.75 million in money and property rights to Cawley. Hiles also avers that he spent approximately $2 million in attorney's fees and expert witnesses in the lawsuits.

After Hiles tendered Anderton and Cascade to Safeco on August 7, 2009, Safeco sent Hiles's attorney a letter dated September 30, 2009 informing Hiles that Safeco was investigating his claim subject to a reservation of rights. Safeco informed Hiles in the letter that "the only party in [Anderton] who meets the definition of an insured is Marcus Hiles."P. App. 170. Safeco stated that it "question[ed] whether the insuring agreement is triggered, as the allegations indicate intentional acts rather than an accident as required by the definition of 'occurrence.'" Id. at 171. And Safeco noted that the Policy might exclude coverage because the acts complained of arose out of Hiles's business pursuits. Safeco also stated that "any action taken by [Safeco] or its representative does not constitute an admission of coverage and shall not waive any of [its] rights under [the Policy]." Id. at 172.

Safeco sent Hiles's attorney a letter dated November 25, 2009 in which it informed him that (1) Hiles was the only entity who met the definition of an insured under the Policy; (2) the Policy did not provide coverage for allegations of intentional conduct (i.e., the claims of tortious interference with existing contract, aiding and abetting breach of fiduciary duty, and conspiracy); and (3) the allegation of defamation was ambiguous because it did "not specify if the defamatory remarks were made in a business or personal capacity." Id. at 174. Safeco informed Hiles that it would defend him against the allegation of defamation in the consolidated case under a full reservation of rights, and that it would continue to investigate whether coverage applied to the acts alleged in the consolidated case. Safeco tendered the conditional defense of Hiles to Kelly Crain, Esq. ("Crain") for defense against the allegations made against Hiles in a personal or non-business capacity.

Because Safeco accepted Hiles's conditional defense subject to a reservation of rights, Hiles rejected Crain and chose to continue to be represented by the law firm of Coats Rose. Safeco, through its law firm, issued a supplemental reservation of rights letter dated February 17, 2010 in which it informed Hiles that (1) only Hiles qualified as an insured under thePolicy; (2) certain exclusions might preclude or limit Hiles's coverage under the Policy (i.e., the business pursuits exclusion or the definition of occurrence); and (3) the Policy was excess coverage over other insurance. Safeco also disagreed with Hiles's assertion of a conflict of interest that permitted him to obtain independent counsel, but it nevertheless agreed to pay Coats Rose's reasonable and necessary fees. Safeco also asked that Coats Rose segregate the fees incurred in defending Hiles from the those incurred defending the Hiles businesses or other defendants.

According to Safeco, Coats Rose submitted invoices of more than $1.87 million in fees and costs in defending Hiles and the Hiles Entities in the consolidated case. But Coats Rose did not segregate the work performed in defending Hiles against the Anderton claims from the work done in defending the Hiles Entities against the Cascade claims. Safeco reimbursed Coats Rose for the individual billing entries that appeared to potentially relate to Coats Rose's defense of Hiles against the Anderton claims.

In the instant case, Safeco seeks a judgment declaring that it has no duty under the Policy to defend or indemnify Hiles and/or the Hiles Entities for the claims asserted in the consolidated case, and, alternatively, that its only obligation to defend is limited to the reasonable and necessary fees incurred by Coats Rose in defending Hiles against the Anderton claims asserted in the consolidated case. Safeco maintains that it has no duty to indemnify Hiles because he paid nothing to resolve the defamation claim in Anderton.

Hiles asserts counterclaims for (1) breach of the Policy; (2) unfair settlement practices, in violation of Tex. Ins. Code Ann. § 541.000, et seq. (West 2003 & Supp. 2010); (3) badfaith in connection with Safeco's handling of the third-party claims against Hiles; (4) violation of the Texas Deceptive Trade Practices-Consumer Protection Act ("DTPA"), Tex. Bus. & Com. Code Ann. §§ 17.41-17.63 (West 2011); and (5) failure to timely accept, deny, or pay Hiles's claims, in violation of Tex. Ins. Code Ann. § 542.051, et seq. Hiles also seeks a declaratory judgment that (1) Safeco has a duty and contractual obligation to pay the reasonable and necessary costs to defend Hiles in the consolidated case and the additional lawsuits; (2) Safeco breached its duties to Hiles; (3) Hiles was damaged by the breach; (4) Hiles's damages were proximately caused by Safeco's breach; (5) the Policy provides coverage to Hiles with respect to the consolidated case and the additional lawsuits; and (6) Hiles's rights and damages incurred vis-a-vis the Policy. Hiles also asserts a counterclaim for attorney's fees incurred in the...