Home Depot U.S.A., Inc. v. Federal Insurance , 85 F. App'x 988 ( 2004 )

United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS January 22, 2004
FOR THE FIFTH CIRCUIT
Charles R. Fulbruge III
Clerk
No. 03-40725
(Summary Calendar)
HOME DEPOT U.S.A., INC.,
Plaintiff-Appellee,
versus
FEDERAL INSURANCE COMPANY,
Defendant-Appellant.
Appeal from the United States District Court
for the Eastern District of Texas
(4:02-CV-95)
BEFORE JOLLY, WIENER, and DENNIS, CIRCUIT JUDGES.
PER CURIAM:*
In this liability insurance coverage dispute, we are asked to
determine whether an insurance company had a duty to defend an
insured in a state court lawsuit (which has since settled). On
cross-motions for summary judgment, the district court denied
summary judgment for Federal Insurance Company (“Federal”), the
insurance company, and granted summary judgment in favor of Home
*
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this opinion should not be published and is not precedent except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.
Depot U.S.A., Inc. (“Home Depot”), the insured. The district court
held that Federal breached its duty to defend Home Depot in
personal injury litigation brought by a Home Depot customer. As
explained below and largely for the reasons stated in the district
court’s well-reasoned memorandum opinion and order, we affirm.1
I. BACKGROUND FACTS
The facts in this matter are essentially undisputed. We,
therefore, adopt the district court’s recitation of the salient
facts and restate them in abbreviated form here.2
Home Depot’s action for declaratory judgment has its genesis
in an accident that occurred when Kathleen T. Rogers (“Mrs.
Rogers”) was severely injured by the fall of a rug display cabinet
inside a Home Depot home improvement store in Plano, Texas. The
display cabinet, which tipped over on Mrs. Rogers while she was
shopping in that store, contained decorative rugs manufactured by
Beaulieu, L.L.C. (“Beaulieu”).
Several months later, Mrs. Rogers and her husband William E.
Rogers (collectively “the Rogerses”) filed suit against Home Depot
and Beaulieu in Texas state court (the “Rogers litigation”).3 They
alleged that Home Depot and Beaulieu were negligent because they:
1
See Home Depot, U.S.A, Inc. v. Federal Insurance Co., 241 F.
Supp. 2d 702 (E.D. Tex. 2003).
2
See id. at 704-05.
3
Subsequently, the Rogerses also sued R.D. Niven &
Associates, the manufacturer of the rug display cabinet and its
installer, Pro Marketing of Texas, Inc.
2
1. Were aware that the top-heavy design and its
location made an accident a virtual certainty;
2. Allowed a dangerous condition to exist on Home
Depot’s premises;
3. Failed to adequately secure the display in place by
bolting it to the floor or wall;
4. Failed to warn customers that the display was
likely to tip over; and
5. Collectively they either designed, manufactured,
sold, distributed, assembled, installed or
maintained an inherently dangerous product in their
premises as a part of their business.
More than a year before the accident in question, Beaulieu and
Home Depot had entered into a Vendor Buying Agreement (“VBA”) under
which Beaulieu rugs would be sold by Home Depot at its retail
stores. The VBA required, inter alia, that Beaulieu carry a
general liability insurance policy naming Home Depot as an
additional insured. At the time of the accident, Beaulieu was
covered under a general liability policy issued by Federal (the
“Policy”). The Policy contained a Vendor Endorsement which
provided:
Any Vendor is an insured, but only with respect to
bodily injury or property damage arising out of the
distribution or sale of your [Beaulieu’s] products in
the regular course of that vendor’s business and only
if products/completed operations coverage is provided
under this contract.
The Policy also contained a Vendor Exclusion provision, which
stated, in pertinent part:
No vendor is an insured with respect to...any failure to
make such inspections, adjustments, tests, or servicing
as the vendor has agreed to make or normally undertakes
3
to make in the usual course of business, in connection
with the distribution or sale of your [Beaulieu’s]
products.
In addition, appended to the Policy was a Liability Insurance
Endorsement that included a provision entitled “Who is Insured,”4
which specified, in pertinent part:
Under Who is Insured, the following provision is added:
* * *
Any person designated below is an insured but only with
respect to liability arising out of your [Beaulieu’s]
operations or premises owned or rented to you.
* * *
Designated Person Or Organization
* * *
AS REQUIRED BY WRITTEN CONTRACT
In a June 2001 letter, Home Depot demanded that Federal defend
it in the Rogers litigation. Federal never responded to this
demand; in March 2002, Home Depot filed the instant suit in
district court seeking a judgment declaring Home Depot’s
entitlement to defense and indemnification from Federal.
In August 2002, the Rogerses entered into a confidential
settlement agreement under which Home Depot and Beaulieu agreed to
pay the Rogerses for a complete release and for the voluntary
dismissal of their claims with prejudice. Just days before the
4
The Liability Insurance Endorsement supplemented the “Who is
Insured” section of the underlying Policy.
4
settlement was signed, Federal executed a written agreement that it
would not contend in this case that the amount paid by Home Dept to
the Rogerses (1) was excessive, unreasonable, unwarranted,
improvident, voluntary or unnecessary, or (2) did not constitute
damages that Home Depot would be entitled to recover from Federal
in the event that Home Depot established Federal’s coverage
liability under the Policy.
In the district court, Home Depot maintained —— as it does on
appeal —— that Federal breached its duty to defend Home Depot in
the Rogers litigation. Home Depot sought indemnification for the
settlement amount that it paid in the Rogers litigation plus its
costs, including attorney’s fees, that it incurred in the Rogers
litigation and in the instant action. Federal counters that the
Policy does not cover Home Depot’s exposure to the claims asserted
by the Rogerses in state court; and that, as coverage of Home Depot
for the Rogerses’ claims does not exist, Federal had no duty to
defend or indemnify Home Depot in the Rogers litigation. The
district court granted summary judgment to Home Depot, rejecting
Federal’s contentions, and Federal timely filed a notice of
appeal.
II. ANALYSIS
A. STANDARD OF REVIEW
5
Our review of the district court’s grant of summary judgment
in favor of Home Depot is de novo.5 As a district court’s
interpretation of an insurance contract is a question of law, we
exercise de novo review over that determination as well.6
B. THE EIGHT CORNERS RULE
The parties acknowledge that we must apply the substantive law
of Texas in this diversity case. In Texas, the duty of an insurer
to furnish a legal defense is analyzed under the “eight corners” or
“complaint allegation” rule: “An insurer’s duty to defend is
determined by the allegations in the pleadings and the language of
the insurance policy.”7 The parties do not dispute the contents of
the documents we examine here in applying the eight corners rule:
The Rogerses’ state court complaint8 and the Policy say what they
say. Rather, the litigants contest the legal effect of the words
contained in those documents.
Neither do the parties quarrel substantially about the basic
principles that govern our application of the eight corners rule.
“An insurer bears the burden of proving that the allegations
5
Salve Regina Coll. v. Russell, 499 U.S. 225, 231 (1991).
6
Am. Nat’l. Gen. Ins. Co. v. Ryan, 274 F.3d 319, 323 (5th
Cir. 2001).
7
Nat’l Union Fire Ins. Co. v. Merchant Fast Motor Lines,
Inc., 939 S.W.2d 139, 141 (Tex. 1997). See also King v. Dallas
Fire Ins. Co., 85 S.W.3d 185, 187 (Tex. 2002).
8
Here, we must analyze the Plaintiffs’ First Amended Original
Petition, which is the Rogerses’ terminal pleading. See Cornhill
Ins. PLC v. Valsamis, Inc., 106 F.3d 80, 84 (5th Cir. 1997).
6
contained in the underlying plaintiff’s petition are excluded from
coverage and any doubt is resolved in favor of the insured.”9 To
satisfy this burden, Federal must prove that none of the claims
asserted by the Rogerses against Home Depot potentially falls
within coverage of the Policy.10 When we analyze the underlying
pleading, we focus on the factual allegations that show the origin
of the damages, rather than the legal theories alleged.11 “The duty
to defend does not depend on what the facts are, or what might be
determined finally by the trier of the facts. It depends only on
what the facts are alleged to be.”12 If the policy under
examination provides coverage for any claim asserted in the
underlying pleading, the insurer’s duty to defend extends to the
entire action.13
C. THE VENDOR EXCLUSION
Federal does not contest that Home Depot is a “vendor” as that
term is used in the Policy. Instead, Federal’s first line of
defense is that the facts alleged in the Rogerses’ First Amended
9
Id. (citing Adamo v. State Farm Lloyds Co., 853 S.W.2d 673
(Tex. App. — Hous. [14th Dist.] 1993, writ denied), cert. denied,
511 U.S. 1053 (1994)).
10
See id.
11
Ryan, 274 F.3d at 324.
12
Argonaut Southwest Ins. Co. v. Maupin, 500 S.W.2d 633, 636
(Tex. 1973).
13
St. Paul Guardian Ins. Co. v. Centrum GS Ltd., 283 F.3d 709,
714 (5th Cir. 2002).
7
Petition implicated the Vendor Exclusion provision and, therefore,
alleged only conduct that was excluded under the Policy.
The Vendor Exclusion provision of the Policy, quoted above,14
precludes coverage for “inspections” that Home Depot “has agreed to
conduct or normally undertakes to make in the usual course of
business.” Federal directs our attention to those factual
allegations in the Rogerses’ First Amended Petition which state
that Home Depot failed to make inspections, tests, or adjustments
to make their store safe. By focusing on these allegations,
Federal insists that it owes no duty to defend because Home Depot
is obligated by Texas premises liability law to make reasonable
inspections.15 We are not convinced.
To start, we agree with the district court’s legal analysis
that Federal has failed to proffer any evidence that Home Depot
ever “agreed to make or normally undertakes to make in the usual
course of business” inspections vis-à-vis the rug display cabinet
or similar installations.16 The Vendor Exclusion is silent about
14
See supra p. 4.
15
Federal cites to such cases as Rosa v. Buddies Food Store,
518 S.W.2d 534, 536-37 (Tex. 1975) and Wal-Mart Stores, Inc. v.
Gonzalez, 968 S.W.2d 934, 936 (Tex. 1988) to show that, under Texas
law, Home Depot owed a duty to exercise reasonable care to protect
Mrs. Rogers from known or discoverable dangerous conditions in the
store.
16
Home Depot, 241 F. Supp. 2d at 708.
8
inspections that may be compelled by law.17 Furthermore, Federal’s
approach would have us ignore other factual allegations in the
Rogerses’ complaint. For example, the Rogerses also alleged that
(1) the display cabinet was top-heavy by design; (2) Home Depot
failed properly to secure the display cabinet to the floor or wall;
and (3) Home Depot failed to warn customers of the display
cabinet’s dangers. Independently, these other allegations —— which
have nothing to do with “inspections, adjustments, tests or
servicing” —— have the potential of giving rise to claims that the
Vendor Exclusion simply cannot be read to preclude. And, because
Federal must defend Home Depot against the entire action if any one
or more of the Rogerses’ claims are covered, Federal’s appeal to
the law of premises liability is unavailing.
D. THE “PRODUCT”
Federal’s second defensive position is that Home Depot is not
entitled to coverage under the Policy unless the Rogerses’ damages
arose from the distribution or sale of Beaulieu’s “products.” And,
advances Federal, because the display cabinet was neither
manufactured by Beaulieu nor offered for sale by Home Depot, the
cabinet could not be a Beaulieu “product,” and Federal owes no duty
to defend Home Depot in the Rogers litigation.
The Policy defines “product” to include “any goods or
products...manufactured, sold, handled, distributed or disposed of
17
We express no opinion on what inspections, if any, would
have satisfied Home Depot’s duty to exercise reasonable care here.
9
by” Beaulieu. The “products” in question here are the rugs
“manufactured” by Beaulieu, not the cabinet in which they were
displayed. Yet Federal would have us analyze whether the display
cabinet qualifies as a “product.” This classic red herring only
confuses the issue. The question is simply whether Mrs. Rogers’
bodily injury “ar[ose] out of the distribution or sale” of the
rugs. We have ruled that, when used in an insurance policy, the
words “arising out of” are “broad, general, and comprehensive terms
effecting broad coverage.”18 Thus, we understand these words to
mean “originating from,” “having its origin in,” “growing out of”
or “flowing from.”19 It would be inconsistent, to say the least,
to read the Policy to say that Mrs. Rogers’ injury did not
originate from or flow from Home Depot’s sale of the Beaulieu
rugs.20 The Rogerses’ damages may not have arisen out of the sale
or distribution of the display cabinet, but they certainly did
arise out of Mrs. Rogers’ shopping for Beaulieu’s rugs at Home
18
Am. States Ins. Co. v. Bailey, 133 F.3d 363, 370 (5th Cir.
1998) (quoting Red Ball Motor Freight, Inc. v. Employers Mut. Liab.
Ins. Co., 189 F.2d 374, 378 (5th Cir. 1951)); Jarvis Christian
Coll. v. Nat’l Union Fire Ins. Co., 197 F.3d 742, 747 n.5 (5th Cir.
1999).
19
Bailey, 133 F.3d at 370; Jarvis Christian Coll., 197 F.3d
at 747 n.5. See also General Agents Ins. Co. v. Arredondo, 52
S.W.3d 762, 767 (Tex. App. — San Antonio 2001, pet. denied).
20
See Old Am. County Mut. Fire Ins. Co. v. Renfrow, 90 S.W.3d
810, 815 (Tex. App. — Fort Worth 2002, no pet.) (“Terms in
contracts are to be given their plain, ordinary meaning unless the
contract shows that particular definitions are used to replace the
ordinary meaning.”).
10
Depot’s store, in which those rugs were displayed for sale in that
cabinet. Federal’s contention on this point approaches
frivolousness.
E. DISTINCT COVERAGE UNDER THE LIABILITY INSURANCE ENDORSEMENT
Federal’s third point on appeal challenges the district
court’s alternative holding that the Liability Insurance
Endorsement extended coverage to Home Depot, separate and apart
from the Vendor Endorsement in the Policy.21 Because we hold that
the Vendor Endorsement requires Federal to defend Home Depot in the
Rogers litigation, we need not reach this alternate basis for
holding Federal responsible.
III. CONCLUSION
We affirm the district court’s grant of summary judgment in
favor of Home Depot and its denial of Federal’s motion for summary
judgment.
AFFIRMED.
21
See Home Depot, 241 F. Supp. 2d at 708-09 (concluding that
“a vendor insured and an AS REQUIRED BY WRITTEN CONTRACT insured
appear to be separate and distinct categories”).
11