American States Insurance v. ACE American Insurance , 547 F. App'x 550 ( 2013 )

Case: 12-20783 Document: 00512446177 Page: 1 Date Filed: 11/19/2013
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
November 19, 2013
No. 12-20783 Lyle W. Cayce
Summary Calendar Clerk
AMERICAN STATES INSURANCE COMPANY,
Plaintiff–Appellant, Cross–Appellee,
v.
ACE AMERICAN INSURANCE COMPANY,
Defendant–Appellee, Cross–Appellant.
Appeals from the United States District Court
for the Southern District of Texas
USDC No. 4:12-CV-1070
Before HIGGINBOTHAM, OWEN, and SOUTHWICK, Circuit Judges.
PER CURIAM:*
Plaintiff–Appellant and Cross–Appellee American States Insurance
Company (American States) appeals the district court’s partial grant of
summary judgment in favor of Defendant–Appellee and Cross–Appellant ACE
American Insurance Company (ACE) on American States’ claims that its
coverage obligation to Hook & Anchor Marine & Water Sports, L.L.C. (Hook &
Anchor) is excess to ACE’s coverage in the underlying litigation and that
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
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American States is entitled to attorneys’ fees and prompt-payment penalties
under the Texas Insurance Code. ACE cross-appeals the district court’s partial
grant of summary judgment in favor of American States that ACE is responsible
for one-half of the costs of Hook & Anchor’s defense. We reverse in part, vacate
in part, and remand the case for further proceedings.
I
American States provided coverage to Hook & Anchor under a commercial
auto policy during the period from August 2008 to August 2009. ACE provided
coverage to Chemical Weed Control, Inc. (Chemical Weed) under a business auto
policy during the period from June 2008 to June 2009. Both policies contained
identical “other insurance” clauses providing for primary coverage for “covered
autos” owned by the policyholder and excess coverage for “covered autos” not
owned by the policyholder.1
In October 2008, Jayme Lynn Jones, an employee of Hook & Anchor, was
involved in a collision with Alexander Kosaka while Jones was driving a truck
owned by Chemical Weed. Kosaka brought suit against Hook & Anchor,2 and
American States tendered the defense of Hook & Anchor to ACE. ACE rejected
the tender and offered instead to share the defense costs with American States.
American States repeated its tender, which ACE again refused. American
States then undertook the defense of Hook & Anchor in full and subsequently
commenced this action seeking defense costs and attorneys’ fees and a
declaration that ACE had the sole duty to defend Hook & Anchor in the suit
against Kosaka.
1
Both policies’ “other insurance” clauses provide in relevant part that “[f]or any covered
‘auto’ you own, this Coverage Form provides primary insurance. For any covered ‘auto’ you
don’t own, the insurance provided by this Coverage Form is excess over any other collectible
insurance.”
2
Kosaka also sued Jones, Chemical Weed, and Darrell Wilson, the owner of both
Chemical Weed and Hook & Anchor, but those claims were all settled prior to trial.
2
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American States moved for partial summary judgment on its claims that
its coverage obligation to Hook & Anchor was excess to ACE’s and that it was
entitled to attorneys’ fees and prompt-payment penalties. ACE filed a cross-
motion for summary judgment against American States on all claims. The
district court granted each motion in part and denied each in part, holding that
ACE had a duty to defend Hook & Anchor, but that American States’ coverage
obligation was not excess to that of ACE and liability should be prorated. The
district court also concluded that ACE’s offer to share defense costs was in line
with its obligation to provide pro rata coverage and that accordingly, ACE did
not breach its contract with Hook & Anchor and American States was not
entitled to attorneys’ fees or prompt-payment penalties. The district court
ordered ACE to pay American States $30,500.00 for its prorated share of
American States’ defense of Hook & Anchor from the date American States
tendered the defense to ACE. Both parties now appeal.
II
We review the grant or denial of summary judgment de novo, applying the
same standard as the district court.3 Summary judgment is appropriate when
“there is no genuine dispute as to any material fact and the movant is entitled
to judgment as a matter of law.”4 In making this determination, we view the
evidence in the light most favorable to the nonmoving party and draw all
inferences in its favor.5 The district court’s interpretation of an insurance
contract is a question of law subject to de novo review.6
3
First Am. Bank v. First Am. Transp. Title Ins. Co., 585 F.3d 833, 836-37 (5th Cir.
2009).
4
FED. R. CIV. P. 56(a).
5
First Am. Bank, 585 F.3d at 837.
6
Travelers Lloyds Ins. Co. v. Pac. Emp’rs Ins. Co., 602 F.3d 677, 681 (5th Cir. 2010).
3
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III
The central issue on appeal is whether the identical “other insurance”
clauses in the American States and ACE policies rendered ACE’s coverage
primary and American States’ coverage excess due to Chemical Weed’s
ownership of the vehicle, or whether the clauses conflict and are knocked out.7
Conflicts involving “other insurance” clauses arise when “more than one policy
covers the same insured and each policy has an ‘other insurance’ clause which
restricts its liability by reason of the existence of other coverage.”8 Accordingly,
under the rule announced by the Supreme Court of Texas in Hardware Dealers
Mutual Fire Insurance Co. v. Farmers Insurance Exchange,9 when an insured
would receive “coverage from either one of two policies but for the other, and
each contains a provision which is reasonably subject to a construction that it
conflicts with a provision in the other concurrent insurance, there is a
conflict . . . . [that can be] solved by ignoring the two offending provisions.”10
This court has interpreted Hardware Dealers broadly, holding that even when
a plausible interpretation of opposing “other insurance” clauses would render
one policy’s coverage primary and the other’s excess, if a “reasonable
construction” of the two policies from the insured’s perspective would result in
full coverage under each policy but for the existence of the other, the policies
conflict and liability should be apportioned pro rata.11
7
ACE does not contest the district court’s holding that it had a duty to defend Hook &
Anchor. It its brief, ACE states that “[t}he district court held correctly that ACE and American
States were co-primary insurers with pro rata defense obligations.”
8
Hardware Dealers Mut. Fire Ins. Co. v. Farmers Ins. Exch., 444 S.W.2d 583, 586
(Tex. 1969).
9
444 S.W.2d 583 (Tex. 1969).
10
Hardware Dealers, 444 S.W.2d at 589.
11
Royal Ins. Co. of Am. v. Hartford Underwriters Ins. Co., 391 F.3d 639, 642-44 (5th
Cir. 2004); see also Travelers Lloyds Ins. Co., 602 F.3d at 685-86 (holding that the district
4
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In the present case, the district court found that “from the perspective of
Hook & Anchor . . . the ACE Policy would provide coverage for Hook & Anchor
in the Underlying Litigation if the American States Policy did not exist,
and . . . the American States Policy would provide full coverage for
Hook & Anchor in the Underlying Litigation if the ACE Policy did not exist.”
Consequently, the district court concluded that the “other insurance” clauses in
the American States and ACE policies were in conflict and held that liability
should be shared pro rata.
American States argues that Hardware Dealers does not apply because the
“other insurance” clauses included in the American States and ACE policies are
not designed to evade primary liability when other coverage is available, and we
agree. Unlike the “other insurance” clauses in Hardware Dealers and
subsequent decisions of this court interpreting Hardware Dealers,12 the existence
of primary coverage under each of the “other insurance” clauses in the American
States and ACE policies turns not on the availability of other insurance but
rather on vehicle ownership. Because the availability of other insurance is not
dispositive of the existence of primary coverage, the issue addressed in
court’s reading of concurrent “other insurance” clauses as not in conflict was contrary to Fifth
Circuit precedent because one policy could “reasonably be construed to mean that [its] policy
is excess when other insurance is available unless the other insurance either specifically
references [the] policy and states that it is excess to [it], or the other insurance provides that
it applies only as excess insurance above [the specific liability limits of the first policy],” which
the other insurance did not, thus yielding a conflict).
12
See, e.g., Willbros RPI, Inc. v. Cont’l Cas. Co., 601 F.3d 306, 312 nn.3 & 4 (5th Cir.
2010) (competing “other insurance” clauses with one providing for primary coverage but excess
over “[a]ny other primary insurance available” and the other acting as excess to any policy for
which the policyholder was added as an additional insured, unless a written contract or
agreement specifically requires that the insurance be primary or primary and
noncontributing); Royal Ins. Co., 391 F.3d at 641-2 nn.1-2 (opposing “other insurance” clauses
specifying primary insurance unless other insurance is also primary and excess coverage
unless other insurance is specifically arranged on an umbrella or similar basis to apply in
excess).
5
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Hardware Dealers—“other insurance” clauses that “restrict[] . . . liability by
reason of the existence of other coverage”—is not implicated in the present case.13
In Snyder v. Allstate Insurance Co.,14 a post-Hardware Dealers case, the
Supreme Court of Texas dealt with nearly identical facts and concluded that no
conflict existed.15 Although the Snyder court did not discuss the relevance of
Hardware Dealers with respect to the priority of coverage, the court noted that
when “[two] policies have ‘other insurance’ clauses which state that the policy
provides only excess insurance with respect to non-owned automobiles, but
provide for prorated coverage with respect to the owned automobile . . . . [i]f the
[vehicle involved in the accident] was an ‘owned automobile’ within the meaning
of [one insurer’s] policy, then [that insurer’s] coverage is primary and [the other
insurer’s] ‘non-owned’ coverage is excess within the meaning of both policies.”16
Moreover, the court declined to impose pro rata liability on the nonowner’s
insurer and affirmed the trial court’s judgment that the vehicle owner’s insurer
had “an obligation to defend [the non-owners involved in the accident] in all
actions and to pay all claims up to its policy limits arising out of the collision.”17
Because the “other insurance” clauses do not limit liability or coverage
based on the existence of other available insurance, we hold that the policies do
not conflict, and that under the terms of the “other insurance” clauses, ACE was
obligated to provide primary coverage to Hook & Anchor and is liable for the
entirety of Hook & Anchor’s defense. Accordingly, we reverse the district court’s
13
Hardware Dealers, 444 S.W.2d at 586 (emphasis added).
14
485 S.W.2d 769 (Tex. 1972).
15
Snyder, 485 S.W.2d at 770.
16
Id.
17
Id. at 771-72.
6
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judgment that the “other insurance” provisions should be ignored and that
liability should be prorated between ACE and American States.
IV
In addition to its defense costs, American States also seeks its attorneys’
fees incurred in this action and prompt-payment penalties under Texas
Insurance Code § 542.060. The district court held that an award of damages
under § 542.060 would be improper because ACE’s offer to share in Hook &
Anchor’s defense accorded with the district court’s determination that the
defense costs should be prorated between ACE and American States. Because
we conclude that the district court erred in imposing pro rata liability, we vacate
the district court’s judgment with respect to American States’ claim for
attorneys’ fees and prompt-payment penalties and remand for further
proceedings consistent with this opinion.
V
On cross-appeal, ACE contends that because American States rejected
ACE’s offers to share the cost of Hook & Anchor’s defense and “voluntarily” paid
for the entire defense, American States has “no contractual or equitable right to
recover from ACE.” The district court did not explicitly rule on this question.
Accordingly, we remand to the district court to determine in the first instance
whether American States’ payment for Hook & Anchor’s defense was voluntary,
and whether American States is contractually or equitably subrogated to Hook
& Anchor’s rights against ACE.
* * *
For the foregoing reasons, the judgment of the district court is REVERSED
in part and VACATED in part, and the case is REMANDED for further
proceedings consistent with this opinion.
7