Truck Ins. Exch. v. Mid-continent Cas. Co.

• Citation: 320 S.W.3d 613
• Decision Date: 20 September 2010
• Docket Number: No. 03-08-00526-CV.,03-08-00526-CV.
• Parties: TRUCK INSURANCE EXCHANGE, Appellant,v.MID-CONTINENT CASUALTY COMPANY, Appellee.
• Court: Court of Appeals of Texas

320 S.W.3d 613

TRUCK INSURANCE EXCHANGE, Appellant,v.MID-CONTINENT CASUALTY COMPANY, Appellee.

No. 03-08-00526-CV.

Court of Appeals of Texas,

Austin.

Aug. 27, 2010.

Rehearing Overruled Sept. 20, 2010

COPYRIGHT MATERIAL OMITTED

Joseph R. Knight, Baker Botts, LLP, Austin, TX, for appellant.

David L. Plaut, Hanna & Plaut, L.L.P., Austin, TX, for appellee.

Before Justices PATTERSON, PURYEAR and PEMBERTON.

OPINION

DAVID PURYEAR, Justice.

Appellant Truck Insurance Exchange (“Truck”) sued Appellee Mid-Continent Casualty Company (“Mid-Continent”) seeking reimbursement for settlement and defense costs that Truck paid to defend the parties' mutual insured. After the parties filed cross-motions for summary judgment, the trial court granted judgment in Mid-Continent's favor and awarded Mid-Continent its attorney's fees. On appeal, Truck challenges the trial court's summary judgment in three issues and also asserts that there was no evidence to support the trial court's award of attorney's fees to Mid-Continent. We will affirm the trial court's summary judgment and award of attorney's fees.

BACKGROUND

Truck and Mid-Continent issued commercial general liability policies to Daneshjou Company Inc. (“DCI”), an architecture and construction firm. DCI entered into an agreement to design and construct a multi-million dollar home in Austin. When disputes arose between DCI and the property owner, DCI sued the property owner for breach of contract and tortious interference and, in response, the property owner filed counterclaims against DCI for damages related to defective construction by DCI (“construction case”). DCI asked both Truck and Mid-Continent to defend it against these counterclaims under their respective policies. Mid-Continent denied coverage and refused to defend or indemnify DCI because, among other things, it claimed that the acts alleged in the construction case occurred outside its policy coverage period. Truck, however, agreed to defend DCI and spent millions defending DCI through a jury trial on the merits, in which the jury returned a verdict against DCI. In addition to its defense costs, Truck eventually paid $2,000,000 to fund a settlement of the judgment.

After the jury's verdict in the construction case, Mid-Continent filed a diversity suit in federal court against DCI and the property owner, seeking declaratory judgment that it had no duty to indemnify or defend DCI in connection with the construction case (“federal coverage case”). Truck was not a party to Mid-Continent's federal case, nor did DCI join Truck to the federal case. DCI sought to have the case dismissed based on Truck's absence, but the federal court denied DCI's motion because it determined Truck was not a necessary party under federal rules of civil procedure. The federal district court then granted summary judgment for Mid-Continent, finding that Mid-Continent had no duty to defend or indemnify DCI in the construction case because the damages in that case occurred outside Mid-Continent's coverage period (“federal coverage decision”). The Fifth Circuit affirmed and the Supreme Court denied certiorari.

While the federal coverage case was pending, Truck filed this case (1) requesting declaratory judgment that Mid-Continent owed DCI a duty to defend and indemnify in connection with the construction suit and (2) seeking reimbursement for defense and settlement costs that it had spent in the construction case under claims for contribution, subrogation, and breach of contract. After the federal coverage decision issued, the parties filed cross-motions for summary judgment. Truck asserted that, based on the terms of Mid-Continent's policy with DCI, Truck was entitled to summary judgment on the issue of Mid-Continent's duty to indemnify and defend DCI. Mid-Continent asserted that it was entitled to summary judgment on Truck's contribution claims (1) because co-insurers whose policies include “other insurance” clauses ¹ may not bring suit for contribution against co-insurers or, alternatively, (2) because no common obligation existed between Truck and Mid-Continent after the federal coverage decision. Mid-Continent asserted that it was entitled to summary judgment on Truck's subrogation and breach of contract claims because (1) DCI, in whose “shoes” Truck stood as subrogee to DCI, had no claims against Mid-Continent after the federal coverage decision or, alternatively, (2) DCI had been fully defended and indemnified in connection with the underlying construction case. The district court granted summary judgment in favor of Mid-Continent on all Truck's claims without specifying its grounds and, pursuant to a later motion, awarded attorney's fees to Mid-Continent. Truck appeals.

DISCUSSION

In its first three issues, Truck argues that the trial court's grant of summary judgment in favor of Mid-Continent was in error because (1) Truck is not bound by the federal court decision regarding Mid-Continent's duty to indemnify and defend; (2) the supreme court's decision in Mid-Continent Insurance Co. v. Liberty Mutual Insurance Co., 236 S.W.3d 765 (Tex.2007), does not apply to this case because Mid-Continent breached its duty to defend its insured; and (3) Mid-Continent owes its insured a duty to defend under the eight corners rules.

Standard of Review

We review summary judgments de novo. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex.2005). When, as here, both parties move for summary judgment and the trial court grants one motion and denies the other, we review the summary-judgment evidence presented by both sides and determine all questions presented and render the judgment the trial court should have rendered. Canyon Reg'l Water Auth. v. Guadalupe-Blanco River Auth., 258 S.W.3d 613, 616 (Tex.2008); State Farm Lloyds v. Geeslin, 267 S.W.3d 438, 442 (Tex.App.-Austin 2008, no pet.). When a trial court's order granting summary judgment does not specify the grounds relied upon, we must affirm the order if any of the summary-judgment grounds are meritorious. FM Props. Operating Co. v. City of Austin, 22 S.W.3d 868, 872 (Tex.2000).

Preclusive Effect of the Federal Coverage Decision

Truck's first issue on appeal addresses the preclusive effect of the federal coverage decision. Mid-Continent argued in its motion for summary judgment that the federal coverage decision precluded Truck's claims in the present case because each of Truck's claims depended on a finding that Mid-Continent owed DCI a duty to defend or indemnify it in the construction case and that the federal coverage decision had already determined that Mid-Continent owed DCI no such duty. Truck does not dispute that the federal coverage decision is binding on Mid-Continent and DCI or that success on its claims here depends on a finding contrary to the federal coverage decision. Truck contends, however, that it is not bound by the federal coverage decision because it was not a party, or in privity with a party, to that case.

To determine whether a federal judgment in a diversity case binds a non-party in subsequent litigation, we look to the law of the state in which the federal court sits. Semtek Int'l Inc. v. Lockheed Martin Corp., 531 U.S. 497, 508, 121 S.Ct. 1021, 149 L.Ed.2d 32 (2001); see also Taylor v. Sturgell, 553 U.S. 880, 128 S.Ct. 2161, 2171 n. 4, 171 L.Ed.2d 155 (2008) (citing Semtek ) (“For judgments in diversity cases, federal law incorporates the rules of preclusion applied by the State in which the rendering court sits.”).² The federal coverage decision resulted from a diversity action and was rendered in Texas; accordingly, we apply Texas res judicata law to determine the preclusive effect of the federal coverage decision.³

“[R]es judicata is the generic term for a group of related concepts concerning the conclusive effects given final judgments.” Barr v. Resolution Trust Corp., 837 S.W.2d 627, 628 (Tex.1992). There are two principal categories within this doctrine: claim preclusion and issue preclusion. Id. Claim preclusion-also referred to generally as “res judicata”-prevents the relitigation of a claim or cause of action that has been finally adjudicated and “requires proof of the following elements: (1) a prior final judgment on the merits by a court of competent jurisdiction; (2) identity of the parties or those in privity with them; and (3) a second action based on the same claims as were raised or could have been raised in the first action.” Amstadt v. United States Brass Corp., 919 S.W.2d 644, 652 (Tex.1996). Truck does not dispute the first and third of these elements, but contests the second. Truck was not a party to the federal coverage decision, thus we must determine whether Truck is in privity with DCI as to the claims determined by the federal coverage decision.

A person can be in privity with a party to a previous judgment in at least three ways: (1) by controlling the action that resulted in the judgment without being a party to it; (2) by having its interests represented by a party to the action; or (3) by acting as a successor in interest to a party to the prior action. Amstadt, 919 S.W.2d at 653 (citing Getty Oil Co. v. Insurance Co. of N. Am., 845 S.W.2d 794, 800 (Tex.1992); see also Taylor, 128 S.Ct. at 2172-73 (recognizing at least six exceptions to non-party preclusion rule, including pre-existing “substantive legal relationship[s] with the party to the previous judgment”). But as the Texas Supreme Court has noted, “[t]here is no general definition of privity that can be automatically applied in all res judicata cases; the circumstances of each case must be examined.” Getty Oil, 845 S.W.2d at 800. Therefore, in reviewing the record to determine if privity exists, we are not bound by these three categories, but rather use the categories to guide our analysis here.

An analysis to determine whether a person is in privity with a party to a prior judgment begins by examining the interests the parties shared. Amstadt, 919 S.W.2d at 653. Privity...