Continental Casualty Company, as Subrogee of Traffic Systems Construction, Inc. v. American Safety Casualty Insurance Company ( 2012 )

Affirmed and Opinion filed February 16, 2012.
In The
Fourteenth Court of Appeals
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NO. 14-10-01128-CV
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CONTINENTAL CASUALTY COMPANY AS SUBROGEE OF TRAFFIC
SYSTEMS CONSTRUCTION, INC., Appellant,
V.
AMERICAN SAFETY CASUALTY INSURANCE COMPANY, Appellee.
On Appeal from the 80th District Court
Harris County
Trial Court Cause No. 2009-32967
OPINION
In this insurance-coverage dispute, Continental Casualty Company, as subrogee of
Traffic Systems Construction, Inc., appeals the trial court‘s summary judgment for
American Safety Casualty Insurance Company. The case concerns Traffic‘s status as an
additional insured under a commercial-liability policy American Safety issued to Williams
Underground. Williams was a subcontractor under Traffic in a road-construction project
for the City of Houston. Jason Maxwell, an employee of Williams, was injured by a
vehicle driven by a third party while working on the project.
Maxwell sued Traffic, Williams, and the third-party driver for negligently causing
his injuries. The insurance policy American Safety issued to Williams contains an
additional-insured endorsement. For Maxwell‘s claims against it, Traffic sought
coverage from American Safety as an additional insured under this endorsement.
American Safety refused coverage, asserting that Maxwell‘s claims against Traffic were
either not covered or excluded under the terms of the policy.
Continental was Traffic‘s liability carrier and provided a defense to Traffic against
Maxwell‘s claims. The underlying lawsuit eventually went to trial. The jury found that
Traffic was among those whose negligence caused Maxwell‘s injuries. Continental
ultimately paid Maxwell $250,000 to settle his claims against Traffic.
On May 27, 2009, Continental sued American Safety. Asserting claims of
contractual and equitable subrogation, contribution, and breach of contract, Continental
sought the recovery of Traffic‘s defense costs ($133,715), the amount it paid on behalf of
Traffic to settle the underlying lawsuit ($250,000), and for its attorney‘s fees incurred in
the suit against American Safety.
On April 9, 2010, American Safety moved for summary judgment asserting that, as
a matter of law, the policy provides neither defense nor indemnity coverage to Traffic for
Maxwell‘s claims. Relying on numerous grounds to defeat Continental‘s subrogation,
contribution, and breach-of-contract causes of action, American Safety set forth three
specific grounds for its motion: (1) Traffic is not an additional insured under the terms of
the policy because the additional-insured endorsement limits coverage to claims arising out
of the sole negligence of the named insured, which is neither what Maxwell alleged in the
underlying lawsuit nor what the jury found; (2) Traffic is not an additional insured because
Maxwell‘s claims fall under the employer‘s-liability exclusion; and (3) Texas law bars
Continental‘s claim for reimbursement of the settlement.
Continental filed a no-evidence motion for partial summary judgment on the
exclusions American Safety asserted as defenses to coverage. Continental also amended
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its pleadings to allege that American Safety had violated the Texas Insurance Code.
American Safety did not file an amended motion for summary judgment addressing these
new claims. The trial court heard the summary-judgment motions on June 2, 2010, and
granted American Safety‘s motion fifteen days later. The summary-judgment disposed of
all of Continental‘s claims, including those asserting Insurance Code violations. The
record contains no order on Continental‘s no-evidence motion. This appeal followed.
Issues on Appeal
In five appellate issues Continental challenges: (1) the trial court‘s granting of
American Safety‘s motion for summary judgment relating to both duty to defend and duty
to indemnify on Continental‘s subrogation and contribution claims; (2) the trial court‘s
denial of Continental‘s no-evidence motion for partial summary judgment; and (3) the trial
court‘s granting of American Safety‘s motion for summary judgment on Continental‘s
Insurance Code claims.
Continental’s Subrogation and Contribution Claims
In its first issue, Continental argues the trial court erred in granting summary
judgment as to both duty to defend and duty to indemnify based on the sole-negligence
exclusion found in the additional-insured endorsement.
Duty to Defend
Whether an insurer owes its insured a duty to defend is a question of law, which an
appellate court reviews de novo. Huffhines v. State Farm Lloyds, 167 S.W.3d 493, 496
(Tex. App.—Houston [14th Dist.] 2005, no pet.). An insurer‘s duty to defend is
determined by the ―eight corners rule,‖ which requires the court to look solely at the
allegations in the pleadings of the underlying lawsuit in light of the policy provisions,
regardless of the truth of the allegations. Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d
819, 821 (Tex. 1997); Two Pesos, Inc. v. Gulf Ins. Co., 901 S.W.2d 495, 499 (Tex.
App.—Houston [14th Dist.] 1995, no pet.). An insurer is required to defend only those
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cases within the policy coverage. Fid. & Guar. Ins. Underwriters, Inc. v. McManus, 633
S.W.2d 787, 788 (Tex. 1982). Under the ―eight corners rule,‖ the insurer has no duty to
look beyond the policy and the pleadings in determining whether to defend the suit. Nat’l
Union Fire Ins. Co. of Pittsburgh v. Merchs. Fast Motor Lines, Inc., 939 S.W.2d 139, 141
(Tex. 1997) (per curiam); State Farm Lloyds v. Kessler, 932 S.W.2d 732, 736–37 (Tex.
App.—Fort Worth 1996, writ denied). The pleadings must be liberally construed in the
insured‘s favor, but the interpretation must be fair and reasonable. Kessler, 932 S.W.2d at
736; see also Nat’l Union Fire Ins., 939 S.W.2d at 141.
―The duty to defend is not affected by facts ascertained before suit, developed in the
process of litigation, or by the ultimate outcome of the suit.‖ Trinity Universal Ins. Co.,
945 S.W.2d at 829. When reviewing the pleadings, the facts alleged by the underlying
plaintiff must be accepted as true for the purposes of determining coverage. Nat’l Union
Fire Ins., 939 S.W.2d at 141. If the plaintiff‘s petition in the underlying lawsuit alleges
only facts for which coverage would be excluded by the policy, then the insurer has no
obligation to defend the lawsuit. McManus, 633 S.W.2d at 788. In determining the duty
to defend, courts may not read facts into the pleadings, look outside the pleadings, or
imagine factual scenarios that might trigger coverage. Nat’l Union Fire Ins., 939 S.W.2d
at 142.
Duty to Indemnify
The duty to defend and the duty to indemnify are distinct and separate duties under a
liability-insurance policy. D.R. Horton-Tex., Ltd. v. Markel Int’l Ins. Co., 300 S.W.3d
740, 743 (Tex. 2009). ―While analysis of the duty to defend has been strictly
circumscribed by the eight-corners doctrine, it is well-settled that the ‗facts actually
established in the underlying suit control the duty to indemnify.‘‖ Id. at 744 (quoting Pine
Oak Builders, Inc. v. Great Am. Lloyds Ins. Co., 279 S.W.3d 650, 656 (Tex. 2009)).
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Additional-Insured Coverage Endorsement
The additional-insured coverage endorsement in the policy provides:
A. The following shall be added to SECTION I, COVERAGE A., Par. 1,
[of the Policy] as subparagraphs d. and e. of the policy:
d. Any person shown as an Additional Insured on a certificate of
insurance issued by us or our authorized representative, or by
endorsement to the policy, provided such person is required to be
named as an Additional Insured in a written contract with you, shall
be entitled to coverage hereunder solely for ―claims‖ or ―suits‖ for
―bodily injury‖ or ―property damage‖ arising solely out of your
negligence. . . . No obligation for defense or indemnity under the
policy is provided to any Additional Insured for ―claims‖ or ―suits‖
directly or indirectly ―arising from‖ the status, actions or inaction,
including (without limitation) for vicarious, derivative or strict
liability of said Additional Insured, its agents, consultants, servants,
contractors or subcontractors (other than the Named Insured), except
for the actions or inactions of the Named Insured.
e. We will have no duty to defend any insured, other than the
Named Insured, except when the sole allegation against that insured is
vicarious liability for the sole negligence of the Named Insured.
As used in the policy, the terms ―you‖ and ―your‖ mean the named insured,
Williams. Substituting the names of the parties in this case into the additional-insured
endorsement quoted above in full, coverage is provided to Traffic as follows:
d. Traffic shall be entitled to coverage hereunder solely for ―claims‖ or
―suits‖ for ―bodily injury‖ . . . arising solely out of Williams‘s
negligence. . . . No obligation for defense or indemnity under the policy is
provided to Traffic for ―claims‖ or ―suits‖ directly or indirectly ―arising
from‖ the status, actions or inaction, including (without limitation) for
vicarious, derivative or strict liability of Traffic, its agents, consultants,
servants, contractors or subcontractors (other than the Williams), except for
the actions or inactions of Williams.
e. We will have no duty to defend any insured, other than Williams,
except when the sole allegation against that insured is vicarious liability for
the sole negligence of Williams.
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Thus, the policy unambiguously provides defense coverage to Traffic only in the event that
Traffic is alleged to be vicariously liable for Williams‘s own sole negligence.
The Summary-Judgment Evidence
American Safety‘s summary-judgment evidence shows that Maxwell, the plaintiff
in the underlying lawsuit, asserted separate negligence claims against Traffic, Williams,
and the third-party driver who actually hit Maxwell. Maxwell‘s petition in the underlying
lawsuit establishes that the claims asserted against Traffic were based on Traffic‘s own
negligence and not for vicarious liability for the sole negligence of Williams. We hold
that American Safety conclusively proved that it had no duty to defend Traffic against the
claims asserted in the underlying lawsuit.
Additional-insured coverage under the policy is unambiguously limited to bodily
injury or property damage arising out of the sole negligence of the named insured,
Williams. But the jury in the underlying case did not find that Maxwell‘s injuries arose
from the sole negligence of Williams. Instead, the jury determined that Williams shared
the responsibility for Maxwell‘s injuries with Traffic, the third-party driver, and Maxwell
himself. Accordingly, we hold that American Safety had no duty to indemnify
Continental.
Continental’s Coverage Arguments
In support of its contention that the trial court erred in granting American Safety‘s
summary judgment on duty to defend and indemnity, Continental makes two arguments.
First, Continental asserts that in his pleadings in the underlying lawsuit, Maxwell alleged
that Traffic was vicariously liable for the actions of Williams, which would bring the
claims within the policy‘s coverage. Second, Continental contends that if we accept
American Safety‘s sole-negligence contention, coverage under the policy is illusory. We
find neither argument persuasive.
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In support of coverage, Continental argues that even if the additional-insured
exclusion is enforced, Maxwell asserted a claim that Traffic was vicariously liable for the
acts of its independent contractor, Williams. But Maxwell did not allege that Traffic was
liable only because it exercised control over the work of Williams. Instead, the opposite is
true: in the underlying lawsuit, Maxwell alleged that Traffic was negligent because it failed
―to take all reasonable, necessary, and/or required actions to make the work site reasonably
safe for workers.‖ Maxwell alleged these failures by Traffic constituted negligence and
negligence per se. In addition, the jury was not asked and did not find that Traffic retained
the right to control or actually exercised control over the work of Williams. Again, the
opposite is true—the jury found that Traffic was jointly negligent along with three others,
including Williams. Because the plaintiff in the underlying lawsuit did not allege
vicarious liability, the additional-insured endorsement did not apply.
In contending that coverage is illusory, Continental relies on ATOFINA
Petrochemicals, Inc. v. Continental Casualty Co., 185 S.W.3d 440 (Tex. 2005) (per
curiam). In ATOFINA, A & B was hired as a contractor to erect steel on Fina‘s property.
Id. at 442. A & B‘s commercial general liability policy with Continental Casualty
(coincidentally the appellant in the instant case) contained the following additional-insured
provisions:
1. THAT PERSON OR ORGANIZATION, IS ONLY AN
ADDITIONAL INSURED FOR ITS LIABILITY ARISING OUT OF
PREMISES ―YOU‖ OWN, RENT, LEASE OR OCCUPY OR FOR ―YOUR
WORK‖ FOR OR ON BEHALF OF THE ADDITIONAL INSURED; AND
2. THE INSURANCE AFFORDED THE ADDITIONAL INSURED
UNDER THIS ENDORSEMENT DOES NOT APPLY TO … ANY
LIABILITY ARISING OUT OF ANY ACT, ERROR OR OMISSION OF
THE ADDITIONAL INSURED, OR ANY OF ITS EMPLOYEES….
Id. at 444.
An A & B employee was injured on the project and sued Fina and others. Id. at 442. Fina
sought coverage and a defense of the lawsuit under A & B‘s insurance policy with
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Continental Casualty. Id. The supreme court adopted Fina‘s interpretation of paragraph
2 and determined that A & B‘s policy excluded coverage for Fina only if Fina‘s sole
negligence caused the underlying incident. Id. at 444 (citing Nat’l Union Fire Ins. Co. v.
Hudson Energy Co., 811 S.W.2d 552, 555 (Tex. 1991) (holding that a court must adopt the
construction of an exclusionary clause urged by the insured as long as that construction is
not unreasonable). Following that determination, the court went on to observe that
―Continental‘s interpretation that the exclusion bars all coverage when any negligence on
the part of the premises owner is pleaded, unless the owner‘s responsibility is based solely
on vicarious liability for the acts of the contractor, would render coverage under the
endorsement largely illusory.‖ ATOFINA, 185 S.W.3d at 444. Continental‘s argument
in this case hinges on this sentence.
We conclude the outcome in ATOFINA does not control the outcome in this case.
Here, the insured‘s construction of the exclusionary clause is not reasonable because the
plain language of the policy excludes coverage except when bodily injury or property
damage arises out of the sole negligence of the named insured. This conclusion is
reinforced by the recent case of Evanston Insurance Co. v. ATOFINA Petrochemicals, Inc.,
256 S.W.3d 660 (Tex. 2008). In Evanston, the court approved the use of the language
found in the policy. The court stated: ―[H]ad the parties intended to insure ATOFINA for
vicarious liability only, language clearly embodying that intention was available.‖ Id. at
666. In a footnote, the court elaborated on this issue: ―[T]he insurer easily could have
limited coverage by including in the endorsement terms such as ‗vicarious liability‘ or
‗negligence of the named insured.‘‖ Id. at 666 n.20. That is precisely what American
Safety did here. Therefore, we conclude this interpretation does not render the coverage
illusory. See Grain Dealers Mut. Ins. Co. v. McKee, 943 S.W.2d 455, 459 (Tex. 1997)
(―While the family[-]member language provides no coverage for Kelly in this instance, the
endorsements provide other types of coverage. . . . Our interpretation of the policy does not
cause a forfeiture, it merely restricts coverage to those who are insured.‖); see also Primary
Plumbing Servs., Inc. v. Certain Underwriters at Lloyd’s London, No. 01-05-00135-CV,
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2006 WL 181403, at *4 n.6 (Tex. App.—Houston [1st Dist.] Jan. 26, 2006, pet. denied)
(mem. op.) (noting that coverage is not illusory if there is coverage under other
circumstances than those present in the case being litigated).
Having determined that American Safety had no duty to defend or indemnify
Continental, we overrule Continental‘s first issue on appeal. Because we conclude the
sole-negligence exclusion applies and supports the trial court‘s summary judgment, we
need not reach Continental‘s issues challenging the other grounds asserted by American
Safety in its motion for summary judgment.
Continental’s No-Evidence Motion for Partial Summary Judgment
In its fourth issue, Continental complains of the trial court‘s denial of its
no-evidence motion for partial summary judgment. Although the trial court heard
Continental‘s motion on June 2, 2010, it never expressly ruled on it. Continental contends
the court implicitly denied the motion when it granted American Safety‘s motion.
The denial of a motion for summary judgment is generally not appealable. United
Parcel Serv., Inc. v. Cengis Tasdemiroglu, 25 S.W.3d 914, 916 (Tex. App.—Houston
[14th Dist.] 2000, pet. denied) (citing Cincinnati Life Ins. v. Cates, 927 S.W.2d 623, 625
(Tex. 1996)). But Continental cites cases holding that when both parties move for
summary judgment and the trial court grants one motion and denies the other, the appellate
court reviews both motions and renders the judgment the trial court should have rendered.
See e.g. Holmes v. Morales, 924 S.W.2d 920, 922 (Tex. 1996). For this exception to
apply, however, both parties must have sought a final judgment in their cross-motions for
summary judgment. CU Lloyd’s of Tex. v. Feldman, 977 S.W.2d 568, 569 (Tex. 1998)
(per curiam). Because Continental moved for only partial summary judgment, the
exception does not apply, and Continental may not appeal the denial of its no-evidence
motion for partial summary judgment. See id. We overrule Continental‘s fourth issue.
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The Insurance Code Claims
In its fifth issue, Continental contends that the trial court erred when it granted
summary judgment on Continental‘s Insurance Code claims because American Safety‘s
motion did not address these claims. We disagree.
As a general rule, issues not expressly presented to the trial court by written motion
for summary judgment cannot be considered as grounds to affirm or reverse the trial
court‘s judgment. PAS, Inc. v. Engel, 350 S.W.3d 602, 609 (Tex. App.—Houston [14th
Dist.] 2011, no pet.). Granting summary judgment on a claim not addressed in the
summary-judgment motion is usually reversible error. G & H Towing Co. v. Magee, 347
S.W.3d 293, 297 (Tex. 2011). However, there are two limited exceptions to the general
rule: (1) when the movant has conclusively proved or disproved a matter that would also
preclude the unaddressed claim as a matter of law and (2) when the unaddressed claim is
derivative of the addressed claim and the movant proved its entitlement to summary
judgment on the addressed claim. Id. (quoting Wilson v. Davis, 305 S.W.3d 57, 73 (Tex.
App.—Houston [1st Dist.] 2009, no pet.)). Although a trial court errs in granting a
summary judgment on a cause of action not expressly presented by written motion, the
error is harmless when the omitted cause of action is precluded as a matter of law by other
grounds raised in the case. Id. at 297-98.
Continental claims that American Safety violated Article 21.21 or Chapter 541 of
the Texas Insurance Code. When the issue of insurance coverage is resolved in the
insurer‘s favor, extra-contractual claims do not survive. State Farm Lloyds v. Page, 315
S.W.3d 525, 532 (Tex. 2010). There can be no liability under Article 21.21 of the
Insurance Code if there is no coverage under the policy. Id. Because we have held that
there is no coverage under the policy, Continental‘s claims under Article 21.21 and
Chapter 541 of the Insurance Code are precluded as a matter of law. Therefore, any error
by the trial court in granting the summary judgment was harmless. We overrule
Continental‘s fifth issue.
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***
We affirm the trial court‘s summary judgment in favor of American Safety on
Continental‘s subrogation, contribution, and breach-of-contract causes of action, and we
hold that the granting of summary judgment on Continental‘s Texas Insurance Code claims
was harmless error.
/s/ Jeffrey V. Brown
Justice
Panel consists of Chief Justice Hedges and Justices Brown and Christopher.
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