Siplast, Inc. v. Emp'rs Mut. Cas. Co.

• Decision Date: 11 January 2022
• Docket Number: No. 20-11076,20-11076
• Citation: 23 F.4th 486
• Parties: SIPLAST, INCORPORATED, Plaintiff—Appellant, v. EMPLOYERS MUTUAL CASUALTY COMPANY, Defendant—Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

23 F.4th 486

SIPLAST, INCORPORATED, Plaintiff—Appellant,

v.EMPLOYERS MUTUAL CASUALTY COMPANY, Defendant—Appellee.

No. 20-11076

United States Court of Appeals, Fifth Circuit.

FILED January 11, 2022

Christopher Andrew Thompson, Brett David Kutnick, Jackson Walker, L.L.P., Dallas, TX, Steven J. Pudell, Christina Yousef, Anderson Kill, P.C., Newark, NJ, for Plaintiff-Appellant.

Kevin Graham Cain, Esq., Christopher Weldon Martin, Houston, TX, for Defendant-Appellee.

Before King, Higginson, and Wilson, Circuit Judges.

Per Curiam:

This case concerns a dispute over whether insurer Employers Mutual Casualty Company has a duty to defend in a lawsuit filed against its insured, Siplast, Inc. Because we find that there is a duty to defend, we reverse the judgment of the district court and remand for further proceedings.

I. FACTS AND PROCEDURAL HISTORY

A. The Underlying Lawsuit

This duty-to-defend case arises from an underlying lawsuit (the "Underlying Lawsuit") filed in New York state court by the Archdiocese of New York (the "Archdiocese") and other plaintiffs (together, the "Underlying Plaintiffs") against various parties including roofing manufacturer Siplast, Inc. ("Siplast").¹ The Underlying Lawsuit stemmed from the Archdiocese's 2012 purchase of a roof membrane system from Siplast, to be installed at a high school in the Bronx, New York. In conjunction with that sale, Siplast guaranteed that the roof membrane system would "remain in a watertight condition for a period of 20 years, commencing with the date hereof; or SIPLAST will repair the Roof Membrane/System at its own expense" (the "Siplast Guarantee").

The following facts that occurred after installation of the roof are drawn from the Archdiocese's complaint in the aforementioned New York state lawsuit (the "Underlying Complaint"). In November 2016, school officials allegedly observed "water damage in the ceiling tiles throughout the Premises after a rain storm" and "notified both [the installing contractor] and Siplast of the water damage and potential leaks." A designated Siplast contractor attempted to repair any damage and prevent leaks, but to no avail; "the School continued to suffer from additional leaks and water damage." After continued communication, during which "Siplast admitted that there were problems with the roof that needed to be addressed," Siplast eventually informed the Archdiocese that "its earlier repair attempts [had been] temporary" and that Siplast "would not honor the Siplast Guarantee with respect to any permanent improvements of the roof."

The Archdiocese then retained a consultant who "performed an exhaustive inspection and survey of the water penetration issues involving the roofing system" and "noted significant issues with both the workmanship and the materials that were compromising the entire roof membrane and system." "Accordingly, the roofing membrane and system has failed of its essential purpose and the only way to remediate the issues caused thereby is to replace in toto the existing, failed membrane and system with a new one." "The estimate provided by the consultant fixed the total cost of the remediation and replacement efforts at approximately $5,000,000."

Based on these alleged facts, the Underlying Plaintiffs filed suit against Siplast and the installing contractor. In their causes of action, the Underlying Plaintiffs stated that they "repeat[,] reaffirm[,] and reallege each of the previous allegations as if fully set forth herein." Specifically as to Siplast, the Underlying Plaintiffs asserted a cause of action for "Breach of the Guarantee," alleging that:

Siplast materially breached its obligations under the Siplast Guarantee by, among other things, (i) failing to correct defects in the roof membrane, system and flashing when called upon by the [Underlying] Plaintiffs to do so, and (ii) failing to abide by the terms of the Siplast Guarantee.... As a result of Siplast's material breaches of the Siplast Guarantee, the [Underlying] Plaintiffs will be forced to replace the roof well in advance of the 20-year-plus expected useful term at a cost of approximately $5,000,000. By reason of such material breaches of the Siplast Guarantee, the Plaintiffs are entitled to judgment against Siplast in an amount to be determined at trial, but in excess of $5,000,000, together with appropriate interest thereon.

B. The Insurance Policy

After receiving the Underlying Plaintiffs' formal notice of their intent to hold Siplast liable, Siplast submitted a claim to Employers Mutual Casualty Company ("EMCC") asserting coverage under commercial general liability policies Siplast had purchased. Those policies required that EMCC "pay those sums that the insured becomes legally obligated to pay as damages because of ... ‘property damage’ to which this insurance applies" and that EMCC "will have the right and duty to defend the insured against any ‘suit’ seeking those damages." For the insurance to apply, the property damage must have been caused by an "occurrence," defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."

The policies were also subject to several exclusions. The two exclusions relevant to the instant dispute are the "Your Product/Your Work Exclusion" and the "Contractual Liability Exclusion."

The "Your Product/Your Work Exclusion" excluded coverage of " ‘[p]roperty damage’ to ‘your product’ arising out of it or any part of it" or " ‘property damage’ to ‘your work’ arising out of it or any part of it and included in the ‘products-completed operations hazard.’ " It defined "Your [P]roduct" as "[a]ny goods or products, other than real property, manufactured, sold, handled, distributed or disposed of by [you]" and "materials, parts or equipment furnished in connection with such goods and products." "Your [W]ork" was defined as "[w]ork or operations performed by you or on your behalf" and "[m]aterials, parts or equipment furnished in connection with such work or operations."

The "Contractual Liability Exclusion" excluded coverage for "property damage" for which Siplast "is obligated to pay damages by reason of the assumption of liability in a contract or agreement." However, the exclusion does not apply to liability for damages "[t]hat the insured would have in the absence of the contract or agreement."

C. Procedural History

After EMCC denied coverage, including its duty to defend Siplast in the Underlying Lawsuit, Siplast filed suit against EMCC in May 2019. It asserted claims for: (1) declaratory relief, "seek[ing] a judicial declaration that EMCC is obligated to provide a defense to Siplast in the Underlying Action," (2) breach of contract, (3) violations of Texas Insurance Code § 542.051 et seq. (prompt payment of claims) and § 541.061 (misrepresentation of insurance policy), and (4) attorneys' fees. EMCC brought a counterclaim for declaratory relief, seeking a judicial declaration that it had no duty to defend Siplast in the Underlying Lawsuit and that it had "no duty to indemnify Siplast for any non-covered damages, including the $5,000,000 cost of replacing Siplast's work and/or product."

Both Siplast and EMCC moved for summary judgment—Siplast on its declaratory relief and breach-of-contract claims, and EMCC on its counterclaim for declaratory judgment as well as on all of Siplast's asserted claims. The district court granted EMCC's motion for summary judgment and denied Siplast's motion for partial summary judgment, finding that while the complaint in the Underlying Lawsuit did allege property damage that was caused by an "occurrence," the alleged damage fit within the Your Product/Your Work Exclusion. The district court did not consider the applicability of the Contractual Liability Exclusion. Siplast timely appeals.

II. STANDARD OF REVIEW

"We review a district court's judgment on cross motions for summary judgment de novo, addressing each party's motion independently, viewing the evidence and inferences in the light most favorable to the nonmoving party." Morgan v. Plano Indep. Sch. Dist. , 589 F.3d 740, 745 (5th Cir. 2009). A grant of summary judgment can stand "only if there is no genuine issue of material fact and the party is entitled to prevail as a matter of law." Id. Whether an insurer has a duty to defend the insured is a question of law which this court reviews de novo as well. Ooida Risk Retention Grp. v. Williams , 579 F.3d 469, 471-72 (5th Cir. 2009).

III. DISCUSSION

A. Governing Law

The law of the forum state, Texas, applies in this diversity case. See Indian Harbor Ins. Co. v. Valley Forge Ins. Grp. , 535 F.3d 359, 363 (5th Cir. 2008). "Under Texas law, an insurer may have two responsibilities relating to coverage—the duty to defend and the duty to indemnify." ACE Am. Ins. Co. v. Freeport Welding & Fabricating, Inc. , 699 F.3d 832, 839 (5th Cir. 2012) (quoting Gilbane Bldg. Co. v. Admiral Ins. Co. , 664 F.3d 589, 594 (5th Cir. 2011) ). These duties are separate, with the duty to defend the broader of the two; "[t]hus, an insurer may have a duty to defend but, eventually, no obligation to indemnify." Zurich Am. Ins. Co. v. Nokia, Inc. , 268 S.W.3d 487, 490-91 (Tex. 2008). Therefore, even though an insurer may not ultimately indemnify its insured, it "must defend its insured if a plaintiff's factual allegations potentially support a covered claim." Id. at 490.

The determination of whether an insurer has a duty to defend is made under the "eight-corners rule." Richards v. State Farm Lloyds , 597 S.W.3d 492, 494 (Tex. 2020). "The eight-corners rule provides that when an insured is sued by a third party, the liability insurer is to determine its duty to defend solely from the terms of the policy and the pleadings of the third-party claimant." GuideOne Elite Ins. Co. v. Fielder Rd. Baptist Church , 197 S.W.3d 305, 307 (Tex. 2006). "The ‘four corners’ of the petition and the ‘four corners’ of the policy together comprise the ‘eight corners’ that give the rule its...