Federated Mutual Insurance v. Grapevine Excavation Inc. , 197 F.3d 720 ( 1999 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________________________________
No. 98-10904
_______________________________________
FEDERATED MUTUAL INSURANCE COMPANY
Plaintiff,
versus
GRAPEVINE EXCAVATION INC.; ET AL,
Defendants,
GRAPEVINE EXCAVATION INC.,
Defendant - Third Party Plaintiff - Appellant,
versus
MARYLAND LLOYDS, a Lloyds Insurance Company,
Third Party Defendant - Appellee.
_________________________________________________________________
Appeal from the United States District Court
for the Northern District of Texas
_________________________________________________________________
December 1, 1999
Before JONES and WIENER, Circuit Judges, and WALTER, District
Judge.*
WIENER, Circuit Judge:
In this breach of contract and declaratory judgment action
arising out of an insurance defense dispute, Defendant-Third Party
Plaintiff-Appellant Grapevine Excavation, Inc. (“GEI”) appeals the
*
District Judge of the Western District of Louisiana, sitting
by designation.
district court’s grant of summary judgment in favor of Third Party
Defendant-Appellee Maryland Lloyds (“Maryland”). Following a de
novo review of the record, we reverse and render judgment in favor
of GEI, but remand the case to the district court for a
determination of the appropriate remedy. In addition, we retain
jurisdiction for the limited purpose of deciding whether GEI is
entitled to recover the attorney’s fees incurred in this case, a
question that we have certified to the Supreme Court of Texas.
I
FACTS AND PROCEEDINGS
The present controversy arises out of a suit filed by Tribble
& Stephens, Co. (“T&S”) against GEI and various other defendants.
T&S, a general contractor, was hired by Wal-Mart to construct a
parking lot at its store in Burleson, Texas. T&S subcontracted
with GEI to perform excavation, backfilling and compacting work in
connection with T&S’s construction of the lot.1
In August 1995, approximately six months after GEI completed
work on the project, Wal-Mart discovered that the select fill
materials provided and installed by GEI failed to meet
specifications and, as a result, had caused damage to the work of
1
T&S agreed to pay GEI $666,000 for its work under the
subcontract. To guarantee GEI’s performance, Employers Mutual
Casualty Co. (“EMCASCO”) furnished a subcontract bond to T&S for
this amount. In doing so, EMCASCO agreed to indemnify T&S against
all expenses incurred as the result of GEI’s failure to meet the
requirements and specifications of the subcontract.
2
T&S’s paving subcontractor, Moore Construction, Inc. (“Moore”).
Although Wal-Mart initially contemplated requiring T&S to correct
the deficiency by installing an asphalt overlay on the lot, it
ultimately opted to withhold from T&S partial payment of the
balance due under its construction contract.
Thereafter, T&S filed suit in state court against GEI.2 In
that suit T&S sought a declaratory judgment on the issue of GEI’s
financial responsibility for damage to the parking lot, and alleged
claims of breach of contract, negligence, and violations of the
Texas Deceptive Trade Practices Act (“DTPA”).
On being named a defendant in the T&S litigation, GEI called
on its commercial general liability insurance (“CGL”) carriers,
Federated Mutual Insurance Company (“Federated”) and Maryland, to
provide a defense. Federated acquiesced in the demand, subject to
a reservation of its rights, but Maryland refused. Thereafter,
Federated filed this declaratory judgment action in federal
district court in Texas seeking a determination of its obligations
under its policy. GEI counterclaimed against Federated and filed
a third-party complaint against Maryland alleging breach of
contract and seeking declaratory judgment that Maryland had a duty
to defend.
The parties filed cross motions for summary judgment and the
2
Also named as defendants in T&S’s suit are EMCASCO (GEI’s
surety), Moore (T&S’s paving subcontractor), and American States
Insurance Company (Moore’s surety).
3
court ruled in favor of Federated and Maryland, concluding that
neither insurer had a duty to defend GEI in the T&S lawsuit. The
district court based its ruling, in pertinent part, on a
determination that GEI’s performance under its subcontract was an
intentional act and, therefore, did not constitute an “occurrence”
as that term is defined in the Federated and Maryland CGL policies.
GEI now appeals, seeking reversal of the district court’s grant of
summary judgment in favor of Maryland.3
II
ANALYSIS
A. Standard of Review
We review a grant of summary judgment de novo, applying the
same standard as the district court.4 Summary judgment is
appropriate when the evidence, viewed in the light most favorable
to the nonmoving party, presents no genuine issue of material fact
and shows that the moving party is entitled to judgment as a matter
of law.5
3
GEI does not appeal the district court’s grant of summary
judgment in favor of Federated. The Federated policy provided
coverage from January 1, 1994 to January 1, 1995; the Maryland
policy provided coverage from January 1, 1995 to January 1, 1996.
The district court held that there were no allegations indicating
that property damage became apparent until after January 1, 1995,
i.e., until coverage under Federated’s policy had expired.
4
Melton v. Teacher’s Ins. & Annuity Ass’n of America, 114 F.3d
557, 559 (5th Cir. 1997).
5
River Prod. Co., Inc. v. Baker Hughes Prod. Tools, Inc., 98
F.3d 857, 859 (5th Cir. 1996).
4
B. Maryland’s Duty to Defend GEI
The parties agree that Texas law controls whether Maryland has
a duty to defend GEI in the T&S litigation. Texas courts follow
the “eight corners” or “complaint allegations” rule in making this
determination.6 Under this rule, courts compare the words of the
insurance policy with the allegations of the plaintiff’s complaint
to determine whether any claim asserted in the pleading is
potentially within the policy’s coverage.7 The burden is on the
insured to show that a claim against him is potentially within the
scope of coverage under the policies; however, if the insurer
relies on the policy’s exclusions, it bears the burden of proving
that one or more of those exclusions apply.8 Once the insurer
proves that an exclusion applies, the burden shifts back to the
insured to show that the claim falls within an exception to the
exclusion.9
Maryland’s CGL policy provides liability coverage to GEI for
"property damage" caused by an "occurrence.” As defined in the
policy, “property damage” means “[p]hysical injury to tangible
6
Canutillo Indep. Sch. Dist. v. National Union Fire Ins. Co.,
99 F.3d 695, 701 (5th Cir. 1996).
7
National Union Fire Ins. Co. v. Merchants Fast Motor Lines,
Inc., 939 S.W.2d 139, 141 (Tex. 1997).
8
Guaranty Nat’l Ins. Co. v. Vic Mfg. Co., 143 F.3d 192, 193
(5th Cir. 1998); Canutillo, 99 F.3d at 701; Sentry Ins. v. R.J.
Weber, 2 F.3d 554, 556 (5th Cir. 1993).
9
Guaranty Nat’l Ins. Co., 143 F.3d at 193.
5
property, including all resulting loss of use of that property.”
The term “occurrence” means “an accident, including continuous or
repeated exposure to substantially the same general harmful
conditions.” The term “accident,” however, is not defined.
Maryland concedes that the damage to the parking lot constitutes
“property damage” within the meaning of its policy. Hence,
Maryland’s duty to defend turns on (1) whether T&S has alleged in
its state court petition that this damage was caused by an
“occurrence,” i.e., an “accident,” and, if so, (2) whether
Maryland’s policy nevertheless contains one or more exclusions that
explicitly eschew coverage of T&S’s claims.10
1. Damage Caused by an “Occurrence”
There are two lines of Texas cases construing the definition
of “occurrence” for the purpose of insurance coverage. The first
pertains to coverage of claims against an insured for damage caused
by its alleged intentional torts. According to this body of law,
damage that is the natural result of voluntary and intentional acts
is deemed not to have been caused by an occurrence, no matter how
unexpected, unforeseen, and unintended that damage may be.11
10
GEI’s policy covered the period from January 1, 1995 to
January 1, 1996. It is undisputed that Wal-Mart’s discovery of the
construction deficiencies in the parking lot occurred during this
policy period.
11
Argonaut Southwest Ins. Co. v. Maupin, 500 S.W.2d 633, 635
(Tex. 1973)(citing Thomason v. United States Fidelity & Guar. Co.,
248 F.2d 417, 419 (5th Cir. 1957)).
6
This principle was first enunciated by the Texas Supreme Court
in Argonaut Southwest Insurance Co. v. Maupin.12 In that case,
Maupin Construction Company sued Argonaut for refusing to defend it
in a trespass suit brought by the owner of a parcel of real
property from which Maupin had removed dirt pursuant to a contract
with the owner’s tenant. Argonaut’s policy provided coverage for
“injur[ies] to or destruction of property . . . caused by [an
occurrence].”13 The policy defined “occurrence” as “(a) an
accident, or (b) in the absence of an accident, a condition for
which the insured is responsible which during the policy period
causes physical injury to or destruction of property which was not
intended.”14 Maupin contended that its removal of dirt constituted
accidental damage to the owner’s property and, as such, fell within
the scope of coverage. The supreme court disagreed.15 An actor is
deemed to have committed the tort of trespass, reasoned the court,
if he intentionally and without the owner’s consent enters onto a
piece of property, regardless whether he was aware of the
property’s ownership at the time.16 As Maupin voluntarily,
intentionally, and without the true owner’s consent removed dirt
12
500 S.W.2d 633 (Tex. 1973).
13
Id. at 634 n.1.
14
Id.
15
Id. at 635.
16
Id.
7
from property belonging to the owner, and as trespass in Texas is
a strict liability tort without a scienter element, the court
concluded that inquiry into whether Maupin expected or intended to
cause damage to the owner was not relevant in determining if a tort
had been committed.
Both state and federal courts sitting in Texas have relied on
Maupin to deny insurance defense and coverage in a steady stream of
cases (the “Maupin line”), all of which involve the alleged
commission of an intentional tort by an insured.17 In cases
involving claims against an insured for damage arising out of his
alleged negligence, however, a second line of cases has developed,
following Massachusetts Bonding & Ins. Co. v. Orkin Exterminating
17
See, e.g., State Fire & Cas. Co. v. Brooks, 43 F. Supp. 2d
695, 702 (E.D. Tex. 1998) (concluding that a claim brought against
an insured for damages resulting from “unconsenting sexual acts” is
a claim for damages resulting from an intentional act which is not
a covered “occurrence”); Metropolitan Property & Cas. Co. v.
Murphy, 896 F. Supp. 645, 648 (E.D. Tex. 1995)(concluding that a
woman’s claim against Murphy, for secretly watching her shower,
bathe, dress, and sleep through holes he had drilled in her
bathroom and bedroom walls, was based on allegations of intentional
conduct that did not satisfy the policy’s definition of
“occurrence”); Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d 819,
828 (Tex. 1997)(concluding that a photo lab clerk’s intentional act
of replicating photographs of a woman and showing them to friends
was not an “accident” within the meaning of the clerk’s homeowners’
liability policy, even though the clerk did not intend to cause
harm to the woman, because the injury of which the woman complained
—— the invasion of her privacy —— could be reasonably anticipated
from the clerk’s conduct); Baldwin v. Aetna Cas. & Sur. Co., 750
S.W.2d 919, 921 (Tex. App. —— Amarillo 1988, reh’g denied) (denying
plaintiff’s claim for damage incurred when his insurer refused to
defend him in a suit brought by the state for alleged repeated and
intentional highway size and weight violations).
8
Co.18 (The “Orkin line”).
In Orkin, the Texas Supreme Court was called on to resolve an
insurance dispute arising out of a suit brought by Gulf Coast Rice
Mills against an exterminator for damage to rice caused by the
application of pesticide in the rice mill’s facilities. A jury in
the underlying case found that Orkin had acted negligently in its
application of the pesticide in Gulf Coast’s premises and that such
negligence was the proximate cause of damage to the rice. In the
insurance litigation that ensued, the supreme court concluded that
the damage for which Orkin had been held liable was caused by an
“accident” within the meaning of the applicable insurance policy.
In reaching this conclusion, the court construed the term
“accident” to “include negligent acts of the insured causing damage
which is undesigned and unexpected.”19
Following Orkin, both state and federal courts in Texas have
interpreted the terms “accident” and “occurrence” to include damage
that is the “unexpected, unforeseen or undesigned happening or
consequence” of an insured’s negligent behavior.20 Many of these
18
416 S.W.2d 396 (Tex. 1967).
19
Id. at 400; accord Cowan, 945 S.W.2d at 828 (affirming the
continuing validity of Orkin’s holding).
20
See, e.g., Lafarge Corp. v. Hartford Cas. Ins. Co., 61 F.3d
389, 395 (5th Cir. 1995)(holding that unintended damage to a
pipeline caused by the defective coating supplied by insured’s
subsidiary was caused by an “occurrence” within the meaning of the
liability policy); Hartford Cas. Co. v. Cruse, 938 F.2d 601, 604-05
(5th Cir. 1991)(concluding that extensive damage to plaintiffs’
home caused by insured’s defectively performed foundation leveling
9
cases have involved claims for damage caused by an insured’s
defective performance or faulty workmanship.21 Furthermore, within
this genre, courts have consistently held that damage wreaked on
the work product of a third party —— as opposed to that of the
insured22 —— is presumed to have been unexpected and, therefore,
constitutes an accident or an occurrence.23
services was unexpected and unintended and, therefore, was caused
by an “occurrence” within the meaning of the policy); Travelers
Insurance Co. v. Volentine, 578 S.W.2d 501, 503 (Tex. App.
1979)(concluding that the destruction of an entire engine as the
result of the malfunction of one repaired valve was unexpected and
unintended); Employers Casualty Co. v. Brown-McKee, Inc. 430 S.W.2d
21, 24 (Tex. App. 1968)(concluding that manufacturer’s alleged
improper construction and repair of concrete grain storage elevator
was an “accident” for the purposes of insurance coverage and
defense because it brought about damage that was “an unexpected,
unforeseen or undesigned happening or consequence from ‘either a
known or unknown cause.’”).
21
See supra note 19.
22
Maryland’s policy, like many general liability policies, does
not cover “‘property damage’ to ‘your work’ arising out of it or
any part of it . . . .” (Emphasis added). A policy containing this
type of exclusion —— commonly referred to as a “business risk”
exclusion —— treats differently the risk that an insured’s
substandard services or supplies will cause damage to his own work
product and the risk that his slipshodness will injure someone or
something else. Cruse, 938 F.2d at 603.
23
See, e.g., Lafarge, 61 F.3d at 395(citing Cruse and Volentine
for the proposition that “there is an accident or occurrence when
the alleged product defect has caused damage to other property”);
Cruse, 938 F.2d at 604-05(considering the “business risk” exclusion
in tandem with the “occurrence” requirement and noting that,
although damage to a builder’s own work caused by his breach of
contract is a cost of doing business that is not covered by a
general liability policy, damage to the work of another is
covered); Volentine, 578 S.W.2d at 503-04(discussing the “business
risk exclusion” and noting that, although the exclusion eschews
coverage of claims against an insured for damage caused by the
insured to his own work, it allows coverage for the insured’s
10
In granting summary judgment in favor of Maryland, the
district court rejected the applicability of the Orkin negligence
line of cases and relied instead on the Maupin line of cases which
pertain to intentional torts. On appeal, GEI contends that this
decision was improper, and we agree.
The allegations in T&S’s state court “Fourth Amended Original
Petition” provide the measure for Maryland’s defense obligation.24
In that petition, T&S alleges that the parking lot was damaged as
a result of GEI furnishing and installing substandard fill
materials. T&S specifically alleges that, six months after GEI
completed its work, Wal-Mart tested GEI’s materials and found them
to have a California Bearing Ratio (“CBR”) in the range of 3.7 to
4.9, well below the 15 CBR specified in the subcontract.
Although GEI readily admits that it intentionally performed
under the subcontract, it denies that it intentionally substituted
inferior materials —— and nothing in the facts alleged by T&S
supports a claim of knowing or intentional substitution of inferior
fill matter. Indeed, the only allegation of knowing conduct
anywhere in T&S’s complaint appears within the context of its DTPA
claim.
liability for damage to other property resulting from the defective
condition of his work).
24
See Rhodes v. Chicago Ins. Co., 719 F.2d 116, 120 (5th Cir.
1983)(stating that the duty to defend is determined by examining
the latest amended pleading on which the insurer based its refusal
to defend the action).
11
It is well settled that an insurer’s duty to defend is
triggered if at least one of several claims in the plaintiff’s
complaint potentially falls within the scope of coverage, even if
other claims do not.25 T&S’s fourth amended petition alleges that
GEI acted negligently —— that is, “caus[ed] damage which is
undesigned and unexpected”26 —— which, if proved to be true,
constitutes an “accident” within the definition ascribed to that
term by the Texas Supreme Court. In Paragraph 5 of the Petition,
T&S summarizes the property damage to the parking lot caused by the
alleged negligence of GEI as follows: “. . . by virtue of failing
to install the correct select fill, [GEI] negligently damaged the
work of [T&S’s] paving contractor, [Moore].”27 Therefore an
“occurrence” is alleged within the four corners of T&S’s complaint,
and that triggers coverage. As T&S’s petition thus includes a
claim that has the potential to lead to a covered loss, Maryland
has a duty to defend GEI —— absent an applicable policy exclusion.
2. Maryland’s Policy Exclusions
Having concluded that the allegations in the complaint in the
underlying suit potentially constitute a covered “occurrence,” we
must reverse the holding of the district court unless GEI’s claim
25
Id. at 119.
26
Orkin, 416 S.W.2d at 400.
27
Emphasis added.
12
of coverage is trumped by a policy exclusion. Maryland urges the
court to apply both (1) the “contractual liability” exclusion and
(2) the “impaired property” exclusion. If either exclusion
applies, Maryland has no duty to defend. The District Court
disposed of the case on the coverage issue, and therefore never
reached the question of the applicability of the exclusions.
a. The Contractual Liability Exclusion
The contractual liability exclusion denies coverage for claims
arising out of
b. “Bodily injury” or “property damage” for which
the insured is obligated to pay damages by reason
of the assumption of liability in a contract or
agreement. This exclusion does not apply to
liability for damages:
(1) Assumed in a contract or agreement that is
an “insured contract” . . .; or
(2) that the insured would have in the absence
of the contact or agreement.
This exclusion operates to deny coverage when the insured assumes
responsibility for the conduct of a third party.28 As GEI is not
being sued as the contractual indemnitor of a third party’s
conduct, but rather for its own conduct, the exclusion is
inapplicable. Moreover, even if the contractual liability
exclusion were somehow applicable to situations in which the
insured is being sued for its own conduct, the exclusion would not
28
Olympic, Inc v. Providence Washington Ins. Co., 648 P.2d
1008, 1011 (Alaska 1982) (explaining that assumption of liability
in a contract “refers to liability incurred when one promises to
indemnify or hold harmless another, and does not refer to the
liability that results from breach of contract.”).
13
apply here. It is true, as Maryland notes, that under the
subcontract between GEI and T&S, GEI agreed to indemnify T&S and
hold it harmless for claims arising both from conduct of specified
third parties and from its own conduct.29 Accordingly, Maryland
urges, GEI’s alleged liability to T&S is “by reason of the
assumption of liability in a contract or agreement” and therefore
excluded from coverage. This indemnity provision is not, however,
the only source of GEI’s duty to T&S. Even absent a contractual
indemnity provision, GEI would be liable to T&S —— under generally
applicable contract law —— for damage caused by GEI’s negligent
failure to perform its contractual duties according the
specifications in the subcontract.30 There are, therefore, at least
two sources from which GEI’s liability to T&S could spring and only
29
The relevant provision of the subcontract provides in
pertinent part:
Subcontractor shall fully protect, indemnify and
defend T&S, . . . and hold [it] harmless from and
against any and all claims, demands, causes of
action, damages, and liabilities . . . for the
destruction of tangible property (other than the
work itself) including the loss of use resulting
therefrom, arising in any manner, directly or
indirectly, out of or in connection with or in the
course of or incidental to any work or operation(s)
of Subcontractor or T&S . . . .
30
See, e.g., Sipes v. Langford, 911 S.W.2d 455, 457 (Tex. App.
1995) (“Implicit in every contract is a common-law duty to perform
the terms of the contract with care, skill and reasonable
experience. A breach of this duty is actionable in tort.”); Tips
v. Hartland Developers, Inc., 961 S.W.2d 618, 621 (Tex. App. 1998)
(same).
14
one of them could be deemed an assumption of liability. When, as
here, liability could be imposed pursuant to either a contractual
indemnity provision or a generally applicable legal principle, the
contractual liability exclusion will not bar coverage.31 For the
forgoing reasons, we conclude that the contractual liability
exclusion does not apply.32
b. The Impaired Property Exclusion
This exclusion denies coverage for claims arising out of
m. “Property damage” to “impaired property” or property
that has not been physically injured, arising out of:
(1) A defect, deficiency, inadequacy or dangerous
condition in . . . “your work;” or
(2) A delay or failure by you or anyone acting on your
behalf to perform a contract or agreement in accordance
with its terms. . . .
“Impaired property” is defined as
tangible property, other than . . . “your work,” that
cannot be used or is less useful because:
31
Cagle v. Commercial Standard Ins. Co., 427 S.W.2d 939, 944
(Tex. App. 1968) (“[W]here the express contract actually adds
nothing to the insured’s liability, the contractual liability
exclusion clause is not applicable . . .” (quoting 63 A.L.R. 2d
1122)); Aetna Casualty and Surety Co. v. Lumbermens Mutual Casualty
Co., 527 N.Y.S.2d 143, 145 (App. Div. 1988) (“[W]here, as here, the
insured contractor is liable under either the indemnity provision
of its contract or in tort independent of contract, the exclusion
for liability assumed under contract will not apply.”).
32
There is an exception to the contractual liabilities
exclusion for liabilities assumed in an “insured contract.” The
parties disagree as to whether GEI’s subcontract falls within the
policy definition of “insured contract.” As the contractual
liabilities exclusion is inapplicable for the reasons set forth
above though, we do not reach this issue.
15
a. It incorporates . . . “your work” that is known or
thought to be defective, deficient, inadequate or
dangerous; or
b. You have failed to fulfill the terms of a contract or
agreement;
if such property can be restored to use by:
a. The repair, replacement, adjustment or removal of .
. . “your work;” or
b. Your fulfilling the terms of the contract or
agreement.
Maryland contends that this provision excludes coverage of
claims for damage33 arising from an insured’s failure to perform its
contractual duties. GEI agrees to a limited extent, but observes
that, in the instant case, T&S has alleged a claim for negligence
in addition to breach of contract. Moreover, argues GEI, the
impaired property exclusion does not apply because the property
damage alleged in T&S’s complaint is not damage to “impaired
property.” This is so, GEI insists, because Moore’s asphalt paving
cannot be “restored to use” by “the repair, replacement, adjustment
or removal” of GEI’s underlying defective fill. We agree.
In Action Auto Stores, Inc. v. United Capitol Ins. Co., Larson
(the insured) installed gasoline containment systems on Action
Auto’s property pursuant to a contract with Action Auto.34 These
33
Maryland suggests that the type of damage covered by the
exclusion clause is “economic loss.” According to the language of
the clause, however, it is clear that “property damage” is the type
of damage covered. Under Texas law, economic damage does not
constitute property damage. Gibson, 966 F. Supp. at 474.
34
845 F. Supp. 417, 419 (W.D. Mich. 1993).
16
containment systems were alleged to have leaked, contaminating the
surrounding soil.35 When Action Auto sued, Larson sought a defense
from its insurer. The insurer refused to defend Larson, based in
part on a policy exclusion identical to the “impaired property”
exclusion at issue here.36 Applying Michigan law, the court held
that the exclusion was not applicable, reasoning that
no evidence has been presented that any damage done to
property surrounding the containment system can be
remedied by the repair, replacement, or adjustment of the
[insured’s] work product. Furthermore, such a result is
illogical as any pollution done to surrounding property
could not possibly be rectified merely by the removal of
the defective work product.37
Similarly here, there has been no suggestion that the damage
to the surface of the parking lot can be restored by “the repair,
replacement, adjustment or removal of” GEI’s underlying work.
Neither has there been any contention that by “fulfilling the terms
of the contract or agreement” GEI can remedy the alleged defect in
Wal-Mart’s parking lot. To the contrary, the only proposed means
of repairing the lot is to install an asphalt overlay, leaving both
GEI’s work and that of the paving subcontractor intact. Indeed, it
is inconceivable that any remedial or supplemental work could be
done to GEI’s portion of the project, all of which lies underneath
the surface, without removing and destroying the paving
35
Id.
36
Id. at 425.
37
Id. at 426.
17
subcontractor’s work. Therefore, while “property damage” has been
alleged, none of the allegations, either alone or in combination,
can be construed as a claim that damage was done to “impaired
property” as that term is defined in Maryland’s policy.
Consequently, we conclude that the impaired property exclusion is
inapplicable.
C. Attorney’s Fees
GEI claims that it is entitled to recover attorney’s fees and
expenses incurred in pursuing coverage from Maryland in this
action, including those incurred on appeal.
Chapter 38 of the Texas Civil Practice and Remedies Code first
sets forth the general rule that litigants can recover reasonable
attorney’s fees incurred in a valid claim on, inter alia, a written
contract.38 It then lists to following five exceptions:
This chapter does not apply to a contract issued by an
insurer that is subject to the provision of:
(1) Article 3.62, Insurance Code [this Article
was repealed in 1991];
(2) Section 1, Chapter 387, Acts of the 55th
Legislature, Regular Session, 1957 (Article
3.62-1, Vernon’s Texas Insurance Code) [this
Article was repealed in 1991];
(3) Chapter 9, Insurance Code;
(4) Article 21.21, Insurance Code; or
(5) the Unfair Claims Settlement Practices Act
(Article 21.21-2, Insurance Code).39
In Dairyland Mutual Ins. Co. v. Childress, an insurance
company was held liable for its policyholder’s attorney’s fees by
38
Tex. Civ. Prac. & Rem. Code § 38.001(8).
39
Id. § 38.006.
18
a state appellate court because the policyholder had successfully
pursued an action for breach of an insurance contract.40 On appeal
to the Supreme Court of Texas, the insurance company argued that it
was not liable for attorney’s fees under the predecessor to Chapter
38 of the Texas Civil Practice and Remedies code because, as an
insurance company, it was shielded from liability for attorney’s
fees by the predecessor to § 38.006. The Texas Supreme Court held
that
Dairyland is a county mutual insurance company and as
such is not one of the insurors exempt from the
provisions of Art. 2226 [the predecessor to Chapter 38 of
the Civil Practice and Remedies Code]. See Tex. Ins.
Code Ann. Art. 7.22. Therefore, it is not exempt from a
claim for attorney’s fees pursuant to Art. 2226.41
Texas appellate courts and this court have disagreed as to the
significance of this statement. We have interpreted the quoted
passage from Dairyland County to imply that “an insurer who falls
within the provisions of section 38.006 is exempt from the payment
of attorney’s fees and that only those insurers who do not qualify
for the exemption are subject to the payment of attorney’s fees.”42
By contrast, Texas appellate courts have held that no such
implication was intended, and that, consistent with the decision of
40
636 S.W.2d 282, 284 (Tex. App. —— Eastland, 1982).
41
Dairyland County Mutual Ins. Co. v. Childress, 650 S.W.2d
770, 774 (Tex. 1983).
42
Bituminous Cas. Corp. v. Vacuum Tanks, Inc., 975 F.2d 1130,
1133 (5th Cir. 1992); see also Lafarge Corp. v. Hartford Cas. Ins.
Co., 61 F.3d 389, 402-03 (5th Cir. 1995).
19
the court in Prudential Ins. Co. v. Burke,43 the purpose of the
exceptions now codified at § 38.006 is “to exclude only those
claims against insurance companies where attorney’s fees [are]
already available by virtue of other specific statutes.”44
Given these divergent interpretations of Dairyland County and
the less-than pellucid provisions of the Texas Code that bear on
this issue, we conclude the most principled solution to the issue
is to ask the Supreme Court of Texas, by certified question, to
explain the proper interpretation of Chapter 38 of the Texas Civil
Practice and Remedies Code as they apply to the facts of this case.
We retain jurisdiction over this appeal for the limited purpose of
implementing the answer, if one is forthcoming; or, if no answer is
supplied, then for the purpose of deciding this question ourselves.
III
Conclusion
We perceive a clearly reconcilable dichotomy, not a tension,
resulting from the distinction between the Maupin and Orkin lines
of Texas cases: In the former, the damage-causing acts of the
tortfeasor are either actually or legally deemed to be
43
614 S.W.2d 847 (Tex. App. —— Texarkana), writ ref’d n.r.e.,
621 S.W.2d 596 (1981).
44
Id. at 850.
20
intentionally harmful; in the latter, the acts that are performed
intentionally are not intended to cause harm but do so as the
result of negligent performance of those acts. As in the instant
case, both types of tortious acts frequently occur in the
performance of a contract; the difference lies in the way that the
obligor performs. An obligor who intends his performance to result
in damage —— or, one who commits an act that is legally deemed to
constitute an intentional tort —— is a Maupin tortfeasor. On the
other hand, an obligor who intends his performance to be correct,
but who negligently falls short of the appropriate standard and
causes unintentional damage, is an Orkin tortfeasor. Had the only
allegations against GEI accused it of knowingly and willfully
choosing and using the substandard material that damaged the
paving, and doing so to cut corners or gain unearned profit, GEI
would be a Maupin tortfeasor. As T&S’s allegations against GEI
include negligence, however, GEI is an Orkin tortfeasor.
GEI adduced sufficient summary judgment evidence to show that
T&S’s complaint contains allegations of property damage caused by
an accident and thus, under the policy, by an “occurrence.” This
shifted the burden to Maryland to show that one or more its policy
exclusions apply, and Maryland failed to meet that burden. Thus
Maryland has a duty to defend GEI in the underlying suit.
Accordingly, we (1) reverse the district court’s grant of summary
judgment in favor of Maryland; (2) render summary judgment in favor
of Grapevine; (3) remand the case for the district court to admit
21
and consider evidence regarding the damages that GEI incurred as a
result of Maryland’s breach, and to fashion an appropriate remedy;
and (4) retain jurisdiction for the limited purpose of determining
whether GEI is entitled to recover attorney’s fees incurred in
pursuing this action.
REVERSED, RENDERED in part, and REMANDED in part; limited
jurisdiction retained for future determination whether Appellant is
entitled to attorney’s fees.
22