Mt. Hawley Insurance v. Lexington Insurance , 110 F. App'x 371 ( 2004 )

United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS
For the Fifth Circuit August 17, 2004
Charles R. Fulbruge III
Clerk
No. 03-10793
MT. HAWLEY INSURANCE COMPANY,
Plaintiff-Appellant,
VERSUS
LEXINGTON INSURANCE COMPANY,
Defendant-Appellee.
Appeal from the United States District Court
For the Northern District of Texas, Dallas
(3:02-CV-1700-G)
Before GARWOOD, WIENER, and DeMOSS, Circuit Judges.
PER CURIAM:*
Plaintiff-Appellant Mt. Hawley, a lessee’s insurer, brought
suit to recover from Defendant-Appellee Lexington, a lessor’s
insurer, under theories of subrogation and/or contribution for fire
damage to insured equipment, which occurred while the equipment was
in the possession of Bryan Excavation, the lessee (Mt. Hawley’s
insured). The facts were stipulated to by the parties and each
*
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opinion should not be published and is not precedent except under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.
party filed a motion for summary judgment. The district court
denied Mt. Hawley’s motion and granted Lexington’s motion.
Mt. Hawley now appeals. We affirm the district court.
BACKGROUND
On July 24, 2002, Mt. Hawley Insurance Company (“Mt. Hawley”)
filed suit against Lexington Insurance Company (“Lexington”) in the
162nd Judicial District Court of Dallas County, Texas. The case
was timely removed on August 9, 2002, to the United States District
Court for the Northern District of Texas based on diversity
jurisdiction.
The issue in dispute is whether a lessee’s property insurer
(Mt. Hawley) may recover under theories of subrogation and/or
contribution from a lessor’s property insurer (Lexington) for fire
damage to insured equipment which was in the possession and control
of the lessee (Mt. Hawley’s insured). Mt. Hawley claims Lexington,
as the lessor’s insurer, is required to contribute one-half of a
$164,900 settlement Mt. Hawley reached with its insured, Bryan
Excavation, in an underlying lawsuit involving coverage for the
excavator.
After the parties agreed to a set of stipulated facts, the
parties filed cross motions for summary judgment on the issue of
coverage. On June 23, 2003, the district court granted Lexington’s
motion for summary judgment, denied Mt. Hawley’s motion for summary
judgment, and entered final judgment in favor of Lexington.
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The stipulated facts are as follows:
On February 21, 2000, a Model 325BL Caterpillar Excavator
caught fire and was destroyed while being used by Brian Neal d/b/a
Bryan Excavation to clear debris at a development site. At the
time of the fire, Bryan Excavation was leasing the excavator from
Elite Rentals, Ltd. (“Elite”).
The lease provided:
Lessee [Bryan Excavation] is fully responsible for
equipment including loss destruction, or damage, whether
with or without fault on part of lessee. Lessee [Bryan
Excavation] agrees to pay Elite Rentals, Ltd. for any
repairs, or replacements at Elite Rentals, Ltd.’s
established prices for similar repairs, parts or
accessories. . . .
Lessee [Bryan Excavation] agrees to procure, take out and
keep in force and effect during the time that the Lease
and Rental Agreement is in effect a policy of Insurance
covering any injury, damage, or loss to the equipment.
At the time of the loss, Bryan Excavation was insured by
Mt. Hawley. Following the loss, Bryan Excavation demanded Mt.
Hawley provide coverage for the loss to leased property. A dispute
subsequently arose between Bryan Excavation and Mt. Hawley
regarding the valuation of the loss. Bryan Excavation ultimately
sued Mt. Hawley for breach of contract, violations of the Texas
Deceptive Trade Practices Act, and violations of Article 21.21 of
the Texas Insurance Code. Ultimately, Mt. Hawley settled its
lawsuit with Bryan Excavation and paid its insured $164,900 for a
release of all contractual and extracontractual claims related to
the damage to the excavator. The check was made payable to Bryan
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Excavation and Elite.
After settling the lawsuit with Bryan Excavation, Mt. Hawley
sought for the lessor’s insurer, Lexington, to contribute $82,450
for the damage that Mt. Hawley admits was caused while the insured
excavator was in the possession of its own insured. Mt. Hawley
believed it was entitled to the proceeds of Lexington’s policy with
Elite under theories of contribution and subrogation.
Other notable facts stipulated by the parties include:
(1) Bryan Excavation is not a named insured or additional
insured under the Lexington policy;
(2) Lexington’s insured, Elite, is not a named insured or
additional insured under the Mt. Hawley policy but is a
loss payee under the Mt. Hawley policy;
(3) Mt. Hawley is not an insured under the Lexington
policy;
(4) Elite never submitted a claim for coverage for the
excavator under the Mt. Hawley Policy;
(5) At no time during the investigation or settlement of
Bryan Excavation’s insurance claim with Mt. Hawley did
Mt. Hawley ever advise Elite that it was an insured under
the Mt. Hawley policy and in fact Mt. Hawley’s own
counsel in this action advised Elite that Elite did not
need to be a party to the settlement Mt. Hawley reached
with Bryan Excavation because he “did not believe there
exists any conceivable claims that Elite may have against
Mt. Hawley.”
Finally, Elite did not accept the Mt. Hawley policy proceeds
in exchange for a release of Bryan Excavation’s liability for the
damage to the rented excavator. In fact, as set forth in the
stipulated facts, prior to Bryan Excavation’s negotiation of
Mt. Hawley’s $164,900 settlement payment, Elite’s counsel informed
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Bryan Excavation it did not agree that Mt. Hawley’s original
estimate of $174,900 ($10,000 more than Mt. Hawley paid Bryan
Excavation because there was a $10,000 deductible) “represented the
fair market value or the replacement value for the machine
destroyed,” and Elite would not waive any rights or remedies it
might have with respect to recovery of amounts properly due it by
Bryan Excavation for the destruction of the excavator pursuant to
the rental agreement. Elite’s counsel claimed Bryan Excavation
owed $203,000 for the damaged excavator. Bryan Excavation did not
contest this fact and agreed pursuant to the terms of the rental
agreement that it was obligated to pay Elite more than what was
paid by Mt. Hawley. Because of the lease agreement with Bryan
Excavation, Elite made a conscious decision not to involve its own
personal insurance with Lexington for payment for the fire damage
to the excavator, but instead has looked solely to Bryan Excavation
to fulfill its contractual requirement to pay for the damage to the
excavator. It is undisputed that, after informing Lexington of its
desire to pursue its claim directly from Bryan Excavation, Elite
has never requested Lexington respond to the loss.
On appeal, Mt. Hawley asserts the district court erred in
denying its motion for summary judgment and granting Lexington’s
motion for summary judgment. Specifically, Mt. Hawley asserts that
this is a case of “double insurance” and Elite is a common insured
under both policies. According to Mt. Hawley, it is entitled to
subrogation (i.e., to step into the shoes of Elite) and enforce
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Elite’s contractual right to recover under the Lexington policy.
Alternatively, Mt. Hawley argues that if Elite is not a common
insured the Mt. Hawley policy is for the benefit of Elite and
therefore, under the doctrine of equitable contribution, Mt. Hawley
is entitled to recover one-half of Mt. Hawley’s $164,900 settlement
with its insured, Bryan Excavation.
DISCUSSION
In this case, the parties have reached certain stipulations
regarding the facts of the case and, therefore, there are no
genuine issues of material fact left to be determined. FED. R. CIV.
P. 56(c). When the material facts are not in genuine dispute, the
only questions presented to the court on appeal are questions of
law which are reviewed de novo. Am. Indem. Lloyds v. Travelers
Prop. & Cas. Ins. Co., 335 F.3d 429, 435 (5th Cir. 2003).
Under Texas law, an insurer’s right to subrogation derives
from the rights of its insured, and is limited to those rights;
there can be no subrogation where the insured has no cause of
action against the defendant. Powell v. Brantley Helicopter Corp.,
396 F. Supp. 646, 650 (E.D. Tex. 1975); Guillot v. Hix, 838 S.W.2d
230, 232 (Tex. 1992); Fishel’s Fine Furniture v. Rice Food Mkt.,
474 S.W.2d 539, 541 (Tex. Civ. App.-Houston [14th Dist.] 1971, writ
dism’d). The subrogee stands in the shoes of the one whose rights
it claims, and the extent of the subrogee’s remedy and the measure
of its rights are controlled by those possessed by the subrogor.
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McAllen State Bank v. Linbeck Constr. Corp., 695 S.W.2d 10, 24 &
n.5 (Tex. App.-Corpus Christi 1985, writ ref’d n.r.e.).
Here, it is undisputed Bryan Excavation is Mt. Hawley’s
insured. It is further undisputed Bryan Excavation was not named
as an insured or additional insured under Lexington’s policy with
Elite. Consequently, when Mt. Hawley steps into the shoes of its
insured, Bryan Excavation, it has no express contractual right to
receive payment from Lexington via subrogation. Therefore, the
district court correctly concluded that Mt. Hawley cannot assert a
subrogation claim against the Lexington policy.
In an effort to avoid Lexington’s summary judgment, Mt. Hawley
argues that Elite was an insured in the Mt. Hawley insurance policy
and therefore Mt. Hawley can step into the shoes of Elite and make
a claim under Elite’s Lexington Policy. There are no facts to
support Mt. Hawley’s argument. In fact, Mt. Hawley’s stipulations,
admissions, and conduct establish that Elite is not an insured
under the Mt. Hawley policy. The district court rejected Mt.
Hawley’s attempt to change positions on its relationship with Elite
in the middle of the litigation and was correct to do so.
Further, Elite is not an implied-in-law co-insured, as
Mt. Hawley alternatively argues. Ignoring its own stipulations,
admissions, and conduct, Mt. Hawley argues that Lexington’s
insured, Elite, should be an insured under the Mt. Hawley policy
based on the equitable principal of implied-in-law co-insured.
There is, however, no basis to conclude that Elite has standing
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under the Mt. Hawley policy as an implied-in-law co-insured. The
equitable insured status is a remedy fashioned to protect a lessor
where the lessee fails to comply with its obligations under the
lease to obtain insurance coverage for the leased property. Cable
Communications Network, Inc. v. Aetna Cas. & Sur. Co., 838 S.W.2d
947, 950 (Tex. App.—Houston [14th Dist.] 1992, no writ). Here, it
is undisputed that the lease required Bryan Excavation to take out
a policy covering its personal liability for any loss or damage to
the rented equipment. It is further undisputed Bryan Excavation
did in fact take out a policy with Mt. Hawley covering a portion of
its liability for the damage to the excavator, and that Mt. Hawley
paid Bryan Excavation $164,900, for the damage that was caused to
the excavator while it was in the possession of Bryan Excavation.
Based on these facts, the remedy offered under the implied
co-insured theory is not proper.
In summary, the requirement in the lease that Bryan Excavation
purchase insurance simply represents a bargained-for arrangement to
provide a source from which Bryan could secure funds to wholly or
partly discharge certain of its repair/replacement obligations as
lessee that might arise under particular circumstances. In
addition, there was nothing in the lease agreement that required
Bryan Excavation to procure insurance on Elite’s behalf and/or name
them as an insured, additional insured, or loss payee. It is
obvious from this rental agreement that the parties to the lease
all intended that Bryan Excavation was solely responsible for the
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protection of the excavator while it was in Bryan Excavation’s
possession as leased property. This was the commercial expectation
of these parties and the insurance policies reflect this
understanding. Therefore, the district court correctly decided the
subrogation issue.
In addition to its effort to subrogate against Lexington,
Mt. Hawley asserts the existence of the Lexington policy makes the
two companies “co-insurers” on the excavator, thus making Lexington
obligated to contribute equally in Mt. Hawley’s settlement with
Bryan Excavation. Mt. Hawley seeks contribution from Lexington on
the ground that it and Lexington have a common legal and
contractual obligation to pay for the actual cash value of the
excavator pursuant to the policies’ “other insurance” clauses.
“For an insurer to be entitled to equitable contribution from
other insurers, the policies in question must insure the same
party, the same interest, and the same risk.” Union Indem. Ins.
Co. of N.Y. v. Certain Underwriters at Lloyd’s, 614 F. Supp. 1015,
1016 (S.D. Tex. 1985). Here, Mt. Hawley’s and Lexington’s
obligations are separate and independent. Mt. Hawley’s policy
protects Bryan Excavation’s liability for loss occasioned to
equipment it rents from third parties. Elite is not identified
anywhere in the Mt. Hawley policy as an insured. Similarly,
Lexington’s policy protects only Elite’s interests in the equipment
it rents to third parties. Not only is Bryan Excavation not
mentioned in Elite’s policy, the policy specifically notes
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noninsureds have no right to the policy and affirmatively states:
“[t]his insurance is for your [Elite’s] benefit. No third party
having temporary possession of your property, such as a
transportation company, lessee or rentee, can benefit directly or
indirectly from it.”
In light of the differences between the two policies, the
“other insurance” provision in the insurance contract between
Mt. Hawley and Bryan Excavation does not impose liability on
Lexington (via Elite). Because in this case the risks and the
interests which were insured are not identical, the district court
was correct in finding that Mt. Hawley is not entitled to
contribution from Lexington in discharging its liability to its
insured, Bryan Excavation. Lexington was, at most, contractually
bound to pay Elite’s claims for any losses it sustained because of
the fire. Elite, not wanting to utilize its own insurance (at the
risk of higher premiums) for a fire caused by its lessee, pursued
no claim under the Lexington policy. Instead, Elite and Bryan
Excavation agreed that because Bryan Excavation caused the damage,
Bryan Excavation would pursue the claim for fire damage to Elite’s
equipment against Bryan’s insurance company, Mt. Hawley, and
personally pay the balance of any amount not recovered thereunder
from the policy proceeds. Therefore, the district court was
correct in granting summary judgment to Lexington on the
contribution issue.
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CONCLUSION
Having carefully reviewed the record of this case, the
parties’ respective briefing and arguments, and for the reasons set
forth above, the decision of the district court denying
Mt. Hawley’s motion for summary judgment and granting Lexington’s
motion is affirmed.
AFFIRMED.
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