his chair again i represent strolling customers but it's just now while it may seem like sort of an arcane exclusion we're arguing over the impact of the court's decision here could have a really significant effect on how commercial general liability policies apply in the construction context there are two issues really before the court one is was sterling an additional insured for purposes of the state court action for which it sought recovery from espinosa the second as does the cross suit exclusion apply to additional insurance m would submit your honour's that the cross to exclude exclusion as has been found in another texas case should not apply to additional insurance at all but if it does it wouldn't apply in this scenario because under these facts sterling was not an additional insured and i think it's important to remember that this isn't an analysis that lloyds is trying to expand coverage to find and that sterling is an additional insured for its benefit they're actually trying to expand the additional insured definition or expand its application so that they can back through that exclusion  to their insured espinosa so in this setting that sterling was a general contractor retained to build a large custom home sterling hired espinosa as its paining subcontractor and part of the sub contract an additional insured the additional insured indorsement which is part of our record was submitted and it states on it and it's a big dish will ensure a door endorsement and it's a blanket additional insured and it says who isn't insured in section two is amended to include as an insured person or organization shown in the schedule and this is the key critical part it says but only with respect to liability arising out of your ongoing operations performed for that insured and your in this case is espinosa parties don't disagree about that so it's very important that that but only for liability arising out of your own going operations be the focus of this analysis because in this case in the underlying case what happened was it was a way that espinosa by the way he was storing oil soaked rags burned down this house at one point three million dollars in damage and the manner in which these were actually being stored was negligent and if there's actually a judgment now for one point three million dollars in change so the general contractor brought claim against honour's this is a claim that is routinely covered by a comprehensive general liability policy this claim by the contractor against the sub contractor for negligence routinely covered and in fact when the claim was first asserted was it was was that coverage acknowledged below before judge sparks initially i think your honor because when they first filed their an actual for declaratory judgment they weren't seeking to forced an exclusion to preclude coverage the only issue in the first original filing of the decoction was was there a supplement that different exclusions also precluded coverage in its entirety four of which were not play and one of those was the cross suits exclusion and it's only after the summary judgment was filed or briefed that they moved for a leave to add this process exclusion so when you get to the hearing and at that point did you say in answer to question two even if we just look at the cross it's exclusion it's ambiguous the eleventh circuit twin city route was that raise said not significant it was raised below particularly ambiguity and i will acknowledge that it was a brief because quite frankly it was a play it was only the only briefing was that it's not play and then we have brief ambiguity issue but quite frankly your honor i don't think you have to find the cross it's exclusion ambiguous to find that it doesn't apply because it states it only applies to suits by one insured against another richard and there have been courts in texas that have held additional insured is not this this cross it's exclusion does not apply to an additional shirt and it's a really what's the best case that even when the language says any ensured it wouldn't be for purposes of across  i believe it's the only case we found your honor was northfield insurance company its side on page thirty one of our brief and it's two thousand and three and i have lets us also so that's ok if this in your are in three u s district lexus two nine zero three one and if i could just expand on that and this is what i think is so important if the cost suits exclusion applies to additional insurance then no general contractors claim whatever be covered for anything against a subcontractor because general contractors are routinely named as additional insurance in fact on this additional insured indorse that if those additional insurance owners listees or contractors we know of sterling this particular insurance contract you're out of that's not in the record i would say that it would be highly unusual for them to but i was so say that this is an i so form this additional insured indorsement it's a typical four so it only vest insured status on additional insured when a claim is being sought against the additional insured for example you hire a subcontractor they bring down a house the homeowner says you you get to make a claim against the additional insured and you also get to be insured by that they might make a third party demand back and it's covered by lloyds that's correct but the argument that sparks excepted was just a plain language one which was sterling should've looked at the actual com policy because had they looked they would have seen it isn't just limited to their liability right the exact language with them being any insured means they just can't sue well but i did say they are suing i believe that i don't believe that they actually would constitute they would qualify but he just says the contract your language but see i don't agree with his interpretation you don't because you say the word liability requires you can only refer to the insured because you don't need insurance if you're not while yes and the best inquiries always does the liability arise out of the additional insurance work not is the additional ensure is the general contractor qualified as an additional insured because of the company allegations again of the complaints these cause claims suits  are that expression and it's not a field and industry i know but there are other terms in insured versus insured and once one looks at other terms it i was shown a fifth circuit case called kinsale two years ago does that ring a bell subcontractor were named insured they were right but that's a completely different city areas but the court still found the clause in a playable i don't remember that your are i'm sorry i don't know what they found i didn't think they found in the political yeah i mean i've never seen a case that applies like this there was a recent texas supreme court case and i think it nails it it says the manifest purpose of an additional insured clause is to provide supplemental protection when the additional insured may be sued when the that's what this additional insured clause is for but think about this too if the wards interpretation was correct if a homeowner brought a claim against a subcontractor for damaging them that claim is derivative through the derivative it's barred by this process exclusion the homeowners claim against the sub contractor which is derivative in nature would also be barred essentially if this is interpretation is adopted then some contractors have no coverage for liability under commercial general liability policy so in this instance there was sterling filed suit against espinosa there were no claims against sterling there was no allegation of liability there was no argument that sterling was responsible for damages there was no reason and notice no impetus for sterling to seek protection as an additional should because nobody seeking liability from  what they've done is they've managed to try and twist the additional insured provision to say well since it doesn't say it has to be sterling's liability it could be espinosa is liability so what they're saying is if sterling is an additional insured esp if somebody seeking a liability against espinosa but that doesn't make any sense because sterling doesn't need insurance protection they don't need a defense they don't need an indemnity unless somebody is making a claim against them which in this case it the commercial general liability policy and the protections it provides to its insureds who are subcontractors it would eliminate coverage for general contractor claims against subcontractors which are always cup i mean general contractors one of the reasons a general contractor requires a subcontractor to purchase a policy so that they're protected in case the case the subcontractor negligently causes the end that's an assurance and that's a protection to the general they get to protections one their additional insurance in case they get sued for vicarious liability but two they're protected in case the sub contractor damages this would eliminate i'm sorry the interpretation by whites would eliminate both of those protections i mean it would still they would still be protected if they were sued for vicarious liability but they bloodied so what's in the way under your interpretation what's lloyd's getting out of the cross claim exclusion well in this particular instance oh well i mean what it does is it essentially keeps a third party liability policy from becoming a first party liability policy think about this way when you've got named insured provisions it says you are the named insured your officers directors employees are all named insur well so let's say the general contractors employees or the general contractor was building a house burns down well a director of the company could sue the general contractor of the company and allege that the job contractor was negligent and therefore the directors have been damaged and they would be covered almost be like a first party liabilities first party policy so the costs it's exclusion just prevents that it keeps one insured from suing another insured and in transforming a third party policy into first party policy so and then just very very briefly the court raised a question about jurisdiction and i believe that those issues have been briefed well we have answer and in iraq a tory answer from sterling that specifically states that the underwriter on this policy is a texas company now they've provided other documents and they've they've given declarations for people who we don't even and the additional insured sterling custom homes the second point we want to raise is the final and not appealable judgment of no coverage as to the named insured mr espinosa is binding upon sterling homes and therefore sterling has no coverage under the policy now what we're talking about here with respect with respect to the first one we all know the texas law applies to this claim sterling got w for the court knows that we have to actually look at the underlying contract between sterling and espinosa to determine what was being sought by sterling as a general contractor for espinosa who is a sole proprietorship he's a painter works out of his house one entire page of that contract has terms and conditions relating to insurance that mr espinosa was mandated to require to get interestingly enough there's about coverage in bold letters we will get the coverage and charge you for mr espinosa did exactly what the sub contract required of him he went to his agent he got the coverage they asked he paid additional money for that coverage and the coverage mandated that they be an additional insured you cannot be an additional shirt sometimes and not be an additional shirt other times you asked to be an additional shirt going to dishwasher one of the things i wanted to point out as well in the sub contract agreement which again was given to mr espinosa ident see which is page seven eighty four of the record and then time see is essentially the additional it shows their intent and it says it is agreed to such insurance afforded by this policy shell also a plot of the below list of additional shirts which is sterling its agents employees representatives here's the words but only with respect to legal liability or claims caused by arising out of a resulting from the operations of the named insured the reality is in the sub contractors incorporate into our policy the exact almost verbatim wording that sterling wanted is what's actually in the policy and when you apply the plain meaning to both that wording and the actual wording that we have in the policy it is clear that additional shirt with respect to the cross  provision again i refer to a question that judge grades just asked in the preceding oral argument the word any is crucial the word any means all any insured there are additional insured there for all and shirts cannot file a cl or a suit against any other insured the works vice versa as well espinosa cannot fall a claim against sterling which would be covered any of the insurance cannot sue any of the insurance it's just the way it is the reality what what case anywhere what we could give the court is a law review article that list a whole bunch of cases in a supplemental briefing and the arguments and we could do that it is no case anywhere the only  gets into the difficulty of what's this coverage worth if there's no case that's ever allowed the cross claims suit to do what you're asking it to be done here it just hasn't been raised your honor it's never been raised ok if there are no published opinions as mr gant also said dealing with the cross it's exclusion but then you've got it you've got case law like twin city well again that's not a texas case applying texas law so what we're saying is you've got to apply texas to the cross it's provision and the plain meaning is that any suit or any claim by any insured against any other insurer but is our object of twin city wrong i mean i looked at a pretty exhaustive lee it's been cited favorably immensely a great number of times it's only had four negative citations and those citations even the negative citations one after another say you would never interpret across claim suit to defeat a suit by the all insured against the name insurer when neither of them being is being held liable by anything which is the language here i think is wrong wrong you think it's wrong and i will say why ok because here in this context we're going back to what i just said relative to who has the power in the contract i'm sure this court has dealt with like in a marine context there are insurance policies in orange concerns provisions where someone says delete the on as the owner provision of the contract at this wording delete this wording the parties have the right to delete or  uy back for like a better term the cross it's provision we wouldn't be here today if sterling had actually said the cross we don't want that wording in our policy or as you just said a little while ago had they read the policy and determined that but by that i mean but you cannot  what if they say we did we're not asking to rewrite anything it isn't putting sterling in front of a liable it's that no one's being held liable here there is no third party suing either therefore the all the the all insured language isn't trigger sterling and his liability and his employees liability was contested because the claim was that they were the cause of the fire at the house so his liability was at issue in the underlying state court action that's ok i don't dispute that sterling liability was not at issue i don't know whether to have hard time seeing that has been noses liability is that issue for purposes of triggering the cross claims here it's any claim by one church against any other and i know that's the literal language but you're facing a lot of authority everywhere that implies you wouldn't interpret it that way and you say there's a large view article that says you could yes your honor and we'd be happy to supplement that article with the court in a supplemental briefing what coverage did and i'm going to get to that in the event for example at this fire let's say the fire spread to the next or house that neighbor sued sterling whether that neighbor sued espinosa or not is irrelevant but in the hypothetical that you're asking me they would have coverage for the neighbor suing them for the fire because it arose out to third party demand backed espinosa i'm sorry if the neighbor sues sterling and sterling make a third party demand to espinosa covered by your client sterling could make a demand directly against my client as an additional short on the policy for that third party liability claim made by the neighbor against them arising out of espinosa as work whether or not mr espinosa is a party to that ac party demand tester knows it then you say no direct if there were cross claims between the two of them in that same lawsuit that same hypothetical that would not be covered the claim by the neighbor against them would be covered they did in fact get what they bar for and what they mandated that mr espinosa get so twins back to using twin cities wrong why you said as to the cross it's provision because again the plain meaning of the wording is just parks said is we have to apply that when i mean x a specific law that saying the eleventh circuit was wrong in its approach you're not saying it is i believe it is yeah ok so you're saying twin city isn't wrong moving on one of the things i wanted to say about our second point is that the final an appealable not appealable judgment of no coverage as to espinosa cannot be challenged on appeal by anybody judgment was rendered as a result named insured under the policy and that was never appealed and that can never be challenged by anybody on appeal it is a final judgment one of the cases i want to talk about was if in fact the court were to agree with sterling that they're not additional shirt which we obviously disagree with but if they're not additional shirred then their status has to be that of a third party beneficiary so one thing you can be you that additional insured are your third party beneficiary or you're a stranger to the contract and you have no rights so if they're not additional sure of as they contend they're a third party beneficiary mr espinosa has no rights to the policy that has been traditionally determined the third party beneficiary stands in the shoes of the named insured can have no greater rights than mr espinosa has to the policy i would refer this court to a couple of key points one is the brief filed by sterling itself and specifically stated that in the order i would like to read from a brief filed by sterling in the district court the document is that the record record number ten eighteen it is intitled defendant sterling custom homes supplemental brief regarding defendant sterling standing to seek a declaratory judgment and this kind of gets to a point that mr b it made about how we didn't play things and they weren't allowed to raise ambiguity in fact the court asked us to submit binding upon a third party beneficiary to a liability insurance policy if properly joined as a party to such action sterling cites state farm fire and casualty vs fullerton the decision of this court written by judge which is what happened here was binding upon the injured party who had been joined as a party to the insurers declaratory judgment action citing ballard versus texas state farm lowered the same document goes on to say because third parties derive their rights if any to collect insurance proceeds directly from the rights of the insured they are deemed to be in privity by virtue of their shared legal interest sterling at the district court level said that situation and the final judgment against mr preston oza is binding upon them as if they're kind of a third party beneficiary that's very consistent with this court's decision and state farm firing penalty versus fullerton in that case just a second about the mean judge taken by the noted that the named insured horrible facts involved a murder the named insured killed his wife and his stepdaughter pled guilty defaulted the court went on to note that the judgment was entered against mr fullerton and it was binding upon the heirs because they were in privity with him because their only standing is as a third party beneficiary to the insurance policy we believe that the statements made by sterling at the trial court level in the fullerton case demonstrate that the final judgment as to espinosa which was never appealed is the i have a couple minutes left i don't know if the court wants me to address the diversity issue or not i'd be happy to do so there is in my mind there's absolutely no doubt that there is diversity we add to the court's question we provided as it was in the past and this particular policy there's only one syndicate that really is oh my god i hope so i've run out around a couple times ok hope so that's what they pay me for but the reality is there's only one syndicate here and there's only one corporation in that one syndicate that's a fact and therefore the amount of controversy is met by that one underwriter because that's the only underwriter that is that issue here a uy is what the policy refers to as a corresponden disputed action it was a default and texas texas law is very clear that a default judgment it gets one defendant does not affect the status rights or liability of a codefendant we cite numerous cases to that effect this court has also held that and injured party has standing to challenge and insurers claim that it owes no coverage to its insured and has no duty to defend this isn't even in if there's a default and there's numerous cases cited in our brief on page twenty six twenty seven fact it's a non issue your honor so the fact that mr espinosa was default it doesn't affect our ability to challenge whether or not the the application of the cross suits exclusion is appropriate not only that but the default was entered on the first petition the original petition or complaint for the current or a judgment and that original complaint only saw a declaration that this one hundred thousand dollars supplement applied that was the petition at the complaint that was defaulted on not this third amended complaint that listed all of these different exclusions the default is a non issue so i just heard that you're either an additional insured all the time or you're never an additional insured but that's not what the policy sets the policy very clearly says you are an additional insured but only with respect to liability arising out of the insurance ongoing transactions or ongoing operations think about that if you're in additional insurance always then why does the general contractor even need to buy it's own policy it doesn't because if you're an additional insurer always then you  insured for all intents and purposes under the policy and that's not what the additional insured provision provides we brief that extensively the additional insured is a stream only limited grant of coverage for it in the extreme limited circumstance and situation and it's when vicarious liability is sought against a general contractor for the actions of the insured subcontractor and that is the only time when a general contractor is an additional insured under the  policy and that just didn't happen here it absolutely didn't happen here there was never a claim made for vicarious or derivative liability against the general contractor for m actions didn't happen so the insured is absolutely not i'm sorry sterling is absolutely not an additional insured for this situation where they're seeking recovery from espinosa also i heard that counsel said that well espinosa should have negotiated the terms of his policy in the record is clear that mr espinosa is a mom and pop painter in austin and the idea of mr escott and he was ordered to by a commercial general liability policy any bought a commercial general i believe policy the fact that he's going to go negotiate the terms and conditions of the lawsuits exclusion with lloyd's of london is i mean with all due field the i'm sorry your right yes it is it's the northfield insurance company versus what so and then so again this is also texas law requires the dischord apply the plain meaning of the terms it applies i mean it requires that this court construed the policy to give effect everything and one point i want to make and this is super important that contracts that require distressed when those are to purchase the policy that's perl evidence the contract has no bearing on the insurance policy the contract doesn't alter the terms of the insurance policy except that it names sterling as a general contractor