IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 14-50649 

consolidated with No. 14-50673

MID-CONTINENT CASUALTY COMPANY, 

 Plaintiff - Appellant

v.

KIPP FLORES ARCHITECTS, L.L.C., 

 Defendant - Appellee

Appeals from the United States District Court

for the Western District of Texas

USDC No. 1:13-CV-60

Before KING, DAVIS, and OWEN, Circuit Judges.

PER CURIAM:*

Following a jury trial in a prior lawsuit, Defendant-Appellee Kipp Flores 

Architects, LLC (“KFA”), an architecture firm, obtained a judgment against a 

builder, Hallmark Design Homes, L.P. (“Hallmark”), for copyright 

infringement for building hundreds of buildings from its designs without 

licensing them. Plaintiff-Appellant Mid-Continent Casualty Company (“MidContinent”), Hallmark’s insurer, filed this declaratory judgment action against 

KFA, seeking a declaration that it has no duty to indemnify under the 

* 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.

United States Court of Appeals

Fifth Circuit

FILED

February 26, 2015

Lyle W. Cayce

Clerk

 

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applicable policies. Mid-Continent claimed the policies did not cover copyright 

infringement directly, only advertising injury arising out of copyright 

infringement, and that the prior judgment did not establish advertising injury. 

The parties filed cross motions for summary judgment. The judge granted 

KFA’s motion and denied Mid-Continent’s, rendering judgment against the 

Mid-Continent in the amount of the prior judgment plus attorney’s fees. MidContinent appealed, arguing that it has no duty to indemnify but, in the event 

it does, the attorney’s fees award is not supported under Texas law.1 For the 

reasons set out below, we affirm.

I. BACKGROUND2

KFA is an architecture firm that designs homes and then licenses those 

designs to other companies to build. Hallmark, a homebuilder in the Houston, 

Texas area, entered into several architectural services and license agreements 

with KFA. Under these agreements, KFA agreed to supply Hallmark with 11 

different house designs, each of which Hallmark was authorized to build once. 

If Hallmark wished to build any copy after that first licensed copy, it was 

required to pay KFA in advance for a license. Under the agreements, 

Hallmark’s failure to pay for a license for reuse of a plan rendered null and 

void KFA’s grant of the right to reuse it.

After building the first licensed copy of each of the 11 house plans, 

Hallmark built several hundred more copies without paying KFA. When KFA 

discovered Hallmark’s actions, it sued Hallmark for copyright infringement, 

seeking actual damages or, in the alternative, statutory damages for the 

1 Because the district court had diversity jurisdiction under 28 U.S.C. § 1332, this 

court has jurisdiction under 28 U.S.C. § 1291.

2 Unless otherwise noted, the undisputed facts in this section come from the district 

court’s opinion, see Mid-Continent Cas. Co. v. Kipp Flores Architects, LLC, No. 1:13-CV-60-

JRN, 2014 WL 3417544 (W.D. Tex. Apr. 3, 2014), as well as the pleadings in the prior suit,

the agreements between KFA and Hallmark, and the policies Mid-Continent issued to 

Hallmark.

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infringement under 17 U.S.C. § 504. In its Second Amended Complaint, KFA 

specifically asserted:

Defendants have created, published and used nonpictorial depictions of structures based on KFA’s 

Copyrighted Works in promotional and advertising 

materials. Defendants have published and used these 

infringing materials in the course of advertising their 

infringing structures. Furthermore, defendants have 

used the structures themselves to advertise their 

infringing structures. These infringing advertising 

activities have resulted in the sales of infringing 

structures described above. Furthermore, these 

infringing advertising activities, and the resulting 

infringing sales, are and have been a substantial 

factor in the value of any infringing structures that 

defendants have not yet sold, and the prices that 

buyers would be willing to pay for such structures.

Hallmark filed for bankruptcy before trial, but the trial went forward 

because Hallmark was potentially covered by the Mid-Continent policies at 

issue in this action. The jury returned a verdict in favor of KFA on September 

12, 2012, finding that Hallmark had infringed all 11 of KFA’s designs and 

finding the amount of profit attributable to the infringement. The district court 

entered a final judgment on October 4, 2012, establishing that Hallmark had 

infringed KFA’s copyrights and allowing KFA an unsecured claim in 

Hallmark’s bankruptcy in the amount of $3,231,084 plus taxable costs of 

$8,604.40. The Fifth Circuit affirmed.3

On January 23, 2012, Mid-Continent filed this action seeking a 

declaratory judgment that it had no duty to indemnify under the policies it 

issued to Hallmark. The policies, discussed in detail below, generally exclude 

coverage for copyright infringement, but they exempt from that exclusion—i.e., 

3 Kipp Flores Architects, L.L.C. v. Hallmark Design Homes, L.P., 544 F. App’x 553, 554 

(5th Cir. 2013).

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cover—an “advertising injury” arising out of infringement in Hallmark’s 

“advertisement,” as defined in the policies. The policies also provide that the 

holder of a judgment against Hallmark may recover under the policies.

Mid-Continent filed a motion for summary judgment, seeking a 

judgment that the policies do not provide coverage for the judgment of 

copyright infringement for a number of reasons. Most notably, Mid-Continent 

argued that the prior judgment was not for a covered “advertising injury”

because the infringement did not take place in an “advertisement” as defined 

in the policies. KFA filed a cross-motion for partial summary judgment 

claiming the policies do cover the prior judgment. The district court granted 

KFA’s motion and denied Mid-Continent’s, and it awarded attorney’s fees to 

KFA under Texas law based on KFA’s contingency fee arrangement with its 

attorneys. 

Mid-Continent appealed both the coverage and attorney’s fees issues on 

a number of grounds. For the reasons set out below, we affirm.

II. DISCUSSION

A. Applicable Law And Policy Language

This court “review[s] a district court’s grant of summary judgment de 

novo,” applying the usual standards under Fed. R. Civ. P. 56.4 The parties 

agree that Texas law governs this insurance dispute, so we must look to state 

law for the rules of policy interpretation and the burden of proof. 

1. Interpretation of Insurance Contracts

Texas’s rules for interpreting insurance contracts are straightforward:

Texas courts “construe insurance policies according to 

the same rules of construction that apply to contracts 

generally.” When interpreting insurance contracts, 

courts seek “to ascertain the true intentions of the 

parties as expressed in the instrument.” To this end, 

4 RSR Corp. v. Int’l Ins. Co., 612 F.3d 851, 857 (5th Cir. 2010).

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Texas courts “examine and consider the entire writing 

in an effort to harmonize and give effect to all the 

provisions of the contract so that none will be rendered 

meaningless,” give policy terms “their ordinary and 

commonly understood meaning unless the policy itself 

shows the parties intended a different, technical 

meaning,” and “strive to honor the parties’ agreement 

and not remake their contract by reading additional 

provisions into it[.]”

Moreover, courts must decide if a contract contains 

ambiguous provisions. If the contract “can be given a 

definite or certain meaning as a matter of law,” courts 

will not consider the contract to be ambiguous. A 

provision is not ambiguous “simply because the parties 

interpret a policy differently.” Rather, a court will find 

a term ambiguous if “the language of a policy or 

contract is subject to two or more reasonable 

interpretations.” If a contract is ambiguous, such 

ambiguity will be construed against the insurer.5

2. Burden of Proof on Coverage and Exclusions

Texas law recognizes that “the duty to defend and the duty to indemnify 

‘are distinct and separate duties.’”6 Because Mid-Continent already paid for 

Hallmark’s defense in the first suit, this suit does not concern the duty to 

defend but the duty to indemnify.

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.” As with 

any other contract, breach or compliance with the 

terms of an insurance policy is determined not by 

pleadings, but by proof. . . .

5 United Nat. Ins. Co. v. Mundell Terminal Servs., Inc., 740 F.3d 1022, 1027 (5th Cir. 

2014) (citations omitted).

6 D.R. Horton-Texas, Ltd. v. Markel Int’l Ins. Co., 300 S.W.3d 740, 743 (Tex. 2009) 

(hereinafter Horton) (quoting Utica Nat’l Ins. Co. v. Am. Indem. Co., 141 S.W.3d 198, 203 

(Tex. 2004)).

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The insurer’s duty to indemnify depends on the facts 

proven and whether the damages caused by the 

actions or omissions proven are covered by the terms 

of the policy. Evidence is usually necessary in the 

coverage litigation to establish or refute an insurer’s 

duty to indemnify.7

The major issue in this case is whether the underlying judgment, which 

established that Hallmark infringed the copyrights of KFA by constructing 

homes from KFA’s designs without a license to do so, triggered coverage for an

“advertising injury” under the policy terms.

3. Policy Language

Five successive one-year policies were in effect from May 28, 2004 to May 

28, 2009, but the relevant language is the same in each. Under COVERAGE B 

PERSONAL AND ADVERTISING INJURY LIABILITY, the policies provide:

a. We will pay those sums that the insured becomes 

legally obligated to pay as damages because of 

“personal and advertising injury” to which this 

insurance applies. We will have the right and duty to 

defend the insured against any “suit” seeking those 

damages. However, we will have no duty to defend the 

insured against any “suit” seeking damages for 

“personal and advertising injury” to which this 

insurance does not apply. We may, at our discretion, 

investigate any offense and settle any claim or “suit”

that may result. . . .

The policies define “personal and advertising injury” as “injury . . . 

arising out of one or more of the following offenses: . . . infringing upon 

another’s copyright, trade dress or slogan in your ‘advertisement.’” Section V.1 

of the policies defines “advertisement” as follows:

1. “Advertisement” means a notice that is broadcast or 

published to the general public or specific market 

segments about your goods, products or services for 

7 Id. at 744 (citations omitted).

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the purpose of attracting customers or supporters. For 

the purposes of this definition:

a. Notices that are published include material 

placed on the Internet or on similar electronic 

means of communication; and

b. Regarding web-sites, only that part of a website that is about your goods, products or 

services for the purpose of attracting customers 

or supporters is considered an advertisement.

Finally, the policies provide an exclusion for most copyright infringement 

except for infringement in advertisements:

2. Exclusions

This insurance does not apply to:

i. Infringement Of Copyright, Patent, 

Trademark Or Trade Secret

“Personal and advertising injury” arising out of 

the infringement of copyright, patent, 

trademark, trade secret or other intellectual 

property rights.

However, this exclusion does not apply to 

infringement, in your “advertisement”, of copyright, 

trade dress or slogan.

III. MID-CONTINENT OWES A DUTY TO INDEMNIFY.

Mid-Continent argues: (a) there is no coverage because the prior 

judgment did not concern an “advertising injury” on its face; (b) KFA relied 

primarily on the use of the houses as “advertisements,” but a house cannot be 

an advertisement under the policies; (c) KFA has not shown sufficient 

causation under the policies; and (d) assuming it can recover at all, KFA failed 

to segregate covered damages from non-covered damages. We find no merit in 

any of these arguments.

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A. The Hallmark Judgment Adjudicated The Facts Necessary 

To Establish An “Advertising Injury” If A Model Home Can 

Be An “Advertisement” Under The Policy.

Mid-Continent argues that the policy language cited above does not cover 

the copyright infringement judgment in this case because the previous 

judgment said nothing of “advertising injury,” and the jury never had to decide 

whether there was an advertising injury. Mid-Continent’s interpretation of the 

prior judgment is also too narrow.

In its order on cross motions for summary judgment, the district court 

set out the following test for determining whether a policy covers “advertising 

injury”: “(1) the allegations in the underlying complaint must raise a ‘potential’

for liability under one of the covered offenses stated in the policy; (2) the 

insured must have engaged in ‘advertising activity’ during the policy period 

when the alleged ‘advertising injury’ occurred; and (3) there must be a causal 

connection between the alleged injury and the ‘advertising activity.’”8 The 

district court concluded that the Hallmark judgment directly established an 

“advertising injury” under that test because, even though the prior verdict did 

not “identically mirror” the policy language, the prior judgment:

conclusively establishes Hallmark’s liability to KFA 

for copyright infringement, including copyright 

infringement committed in connection with 

Hallmark’s ‘advertising.’ That is a covered offense 

explicitly stated in Mid–Continent’s policies. 

Additionally, the record conclusively establishes that 

Hallmark engaged in “advertising activities” (in both 

website and print advertising and the use of infringing 

houses in its marketing activities) during the policy 

periods.9

8 2014 WL 3417544 at *3 (citing Bay Elec. Supply, Inc. v. Travelers Lloyds Ins. Co., 61 

F.Supp.2d 611, 615 (S.D. Tex. 1999), and Sentry Ins. v. R.J. Weber Co., Inc., 2 F.3d 554 (5th 

Cir. 1993)).

9 Id. (citations to record omitted).

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Mid-Continent correctly argues that the district court applied the wrong 

test. The test the district court used was based on duty to defend cases, which, 

as noted above, rely on the eight-corners doctrine (i.e., the language of the 

complaint and the language of the policy) to determine whether the plaintiff 

has stated a potentially coverable claim.10 Instead, the district court should 

have applied the duty to indemnify test set out in Horton: “The insurer’s duty 

to indemnify depends on the facts proven and whether the damages caused by 

the actions or omissions proven are covered by the terms of the policy. Evidence 

is usually necessary in the coverage litigation to establish or refute an insurer’s 

duty to indemnify.”11

That does not change the result here under de novo review, however. 

Mid-Continent’s emphasis on the prior judgment’s failure to specifically refer 

to an “advertising injury” is an unduly narrow view of the “facts proven” rule. 

As the Texas Supreme Court noted in Horton, a coverage suit often requires 

the parties to submit evidence of facts which were not specifically covered at 

the earlier trial. In footnote 3 of Horton, the court cited with approval a Fifth 

Circuit case applying Texas law in which this court reasoned:

Finally, we find that the district court properly 

concluded that Appellees may present evidence at trial 

regarding facts necessary to determine coverage that 

were not adjudicated in the underlying case. The 

underlying case often does not resolve all the factual 

issues necessary to determine coverage because issues 

relevant to the question of coverage can be irrelevant 

to the question of the insured’s liability. See Utica 

Nat’l Ins. Co. of Tex. v. Am. Indem. Co., 141 S.W.3d 

198, 204 (Tex. 2004) (“It may sometimes be necessary 

to defer resolution of indemnity issues until the 

liability litigation is resolved.”). . . . Therefore, courts 

10 Bay Electric Supply and Sentry addressed the duty to defend, not the duty to 

indemnify, with respect to the pleadings test.

11 300 S.W.3d at 744.

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are not precluded from making factual findings in 

coverage actions. Otherwise, insureds . . . can never 

establish coverage whenever there is an underlying 

trial and an issue irrelevant to liability but essential 

to coverage.12

In this case, the issue of “advertising injury” was irrelevant to copyright 

infringement liability but is essential to coverage under the policy. For the 

copyright infringement claim, the jury was only required to find that Hallmark 

infringed KFA’s copyright with respect to the 11 home designs, not to make a 

special finding concerning whether or not that infringement took place in an 

“advertisement” within the terms of the policy.

Because the jury determined that the houses themselves infringed KFA’s 

copyright, the determinative question for coverage under the policies is 

whether the houses themselves were “advertisements” such that the jury 

verdict potentially gives rise to coverage as an “injury . . . arising out of . . . 

infringing upon another’s copyright, trade dress or slogan in your 

‘advertisement.’” The outcome here is determined both by the policy language 

and by the fact that KFA has presented ample evidence that Hallmark used 

the infringing houses for marketing purposes, and Mid-Continent has never 

offered any evidence to the contrary.

B. Under The Policy Terms And The Uncontroverted Facts, 

The Infringing Houses Were “Advertisements.”

Even though the prior suit did not require KFA to present evidence 

concerning advertising, KFA presented a great deal of evidence on the subject. 

KFA has always contended that Hallmark infringed KFA’s copyright in its 

advertisements and that the structures themselves constituted 

advertisements. Beyond these contentions, KFA presented evidence that the 

12 Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. Puget Plastics Corp., 532 F.3d 398, 

404 (5th Cir. 2008) (footnote omitted).

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houses themselves were used to attract customers, in addition to evidence of 

website and print promotional materials. Indeed, on appeal in this case, MidContinent concedes that KFA presented evidence that the houses themselves 

were Hallmark’s primary form of marketing.13

One of Hallmark’s representatives testified in deposition in this suit that 

homebuyers never bought houses sight unseen, but rather would look at the 

model homes Hallmark built as well as elevations and floor plans in the sales 

office or on the website. In addition, Hallmark put up yard signs with its 

contact information on the sites of homes it built to attract customers.

Mid-Continent does not dispute the fact that Hallmark used the 

infringing homes themselves to market to customers, so we must accept that 

fact as true under Rule 56. Rather than attack the facts, Mid-Continent argues 

that an infringing house can never be an “advertisement” under the policies as 

a matter of law. Again, the policies define “advertisement” as “a notice that is 

broadcast or published to the general public or specific market segments about 

your goods, products or services for the purpose of attracting customers or 

supporters.” Mid-Continent argues that, under the policy terms and common 

sense, a house cannot be a “notice,” and it cannot be “broadcast or published.”

Mid-Continent cites no controlling authority that might require the narrow 

reading proposed.

It is important to note that the policies never specify that “notice” must 

take any particular form (e.g., a writing or a website) and never exclude from 

the definition a physical object, nor do they define “broadcast” or “published.”

Among other things, the Oxford English Dictionary defines “notice” sweepingly

as the “act of imparting information” or “something which imparts 

13 Mid-Continent also concedes that Hallmark infringed KFA’s copyright in at least 

one non-house advertisement, but the bulk of its appeal focuses on whether or not the houses 

were “advertisements” under the policies.

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information.”14 The few cases interpreting the policy language at issue here (“a 

notice that is broadcast or published”) have construed “notice” very broadly.15

Under the policy language, such notice need only be broadcast or published to 

qualify as an advertisement. While “broadcast” generally implies radio or 

television advertisement,16 “publish” is much more comprehensively defined as

“to make public or generally known” or “to make generally accessible or 

available for acceptance or use (a work of art, information, etc.); to present to 

or before the public.”17 Thus, the policy language does not support the 

restrictions Mid-Continent proposes.

Texas law also does little to limit the policies’ expansive definition of 

“advertisement.” In Sport Supply Grp., Inc. v. Columbia Cas. Co., 335 F.3d 453 

(5th Cir. 2003), we summarized Texas law on the subject:

The Texas Supreme Court, in another context, adopted 

the following definition of “advertise”:

To advise, announce, apprise, 

command, give notice of, inform, 

make known, publish. On [(sic.)] call 

to the public attention by any means 

whatsoever. Any oral, written, or 

graphic statement made by the seller in 

14 See “notice, n.” OED Online. December 2014. Oxford University Press. 

http://www.oed.com/view/Entry/128591 (accessed February 23, 2015).

15 See AMCO Ins. Co. v. Lauren-Spencer, Inc., 500 F. Supp. 2d 721, 728-29 (S.D. Ohio 

2007) (“Nowhere in that definition are the specific requirements that AMCO seeks to impose, 

and the insurance company’s reliance on the term ‘notice’ to backdoor the requirements into 

the policy is of no avail.”); Acuity v. Ross Glove Co., 2012 WI App 70, ¶¶ 12-13, 344 Wis. 2d 

29, 42-43, 817 N.W.2d 455, 462 (Wis. Ct. App. 2012) (finding that “Ross Glove packaging, 

with its distinctive shape, form and appearance, is a ‘notice’ that, for the purpose of attracting 

customers, misrepresents Ross Glove’s packaged products as those of Seirus”).

16 The Oxford English Dictionary defines “broadcast” in part as “[t]o disseminate (a 

message, news, a musical or dramatic performance, or any audible or visible matter) from a 

radio or television transmitting station to the receiving sets of listeners and viewers; said 

also of a speaker or performer.” See “broadcast, v.” OED Online. December 2014. Oxford 

University Press. http://www.oed.com/view/Entry/23508 (accessed February 23, 2015).

17 See “publish, v.” OED Online. December 2014. Oxford University Press. 

http://www.oed.com/view/Entry/154072 (accessed February 23, 2015).

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any manner in connection with the 

solicitation of business and includes, 

without limitation because of 

enumeration, statements and 

representations made in a newspaper or 

other publication or on radio or television 

or contained in any notice, handbill, sign, 

catalog, or letter, or printed on or 

contained in any tag or label attached to 

or accompanying any merchandise.

Smith v. Baldwin, 611 S.W.2d 611, 614–15 (Tex. 1980) 

(interpreting the term “advertising” under the Texas 

Deceptive Trade Practices Act); see First State Bank v. 

Keilman, 851 S.W.2d 914, 922 (Tex. App.—Austin 

1993, writ denied). The Texas Supreme Court 

further indicated that “advertising” is a 

“marketing device[] designed to induce the 

public to patronize” a particular establishment.

Smith, 611 S.W.2d at 615; see id. (suggesting that 

“advertising” is “a public notice drawing 

attention to” the attributes of a business).The 

Texas Supreme Court’s definition of “advertising”

would seem to accord with our common understanding 

of the term as referring to a device for the solicitation 

of business. See Frog, Switch & Mfg. Co. v. Travelers 

Ins. Co., 193 F.3d 742, 748 (3d Cir. 1999). . . .18

In this case, it is undisputed that Hallmark’s primary means of 

marketing its construction business was through the use of the homes 

themselves, both through model homes and yard signs on the property of 

infringing homes it had built, all of which were marketed to the general public. 

Mid-Continent even contends there is no evidence that Hallmark’s customers 

saw any marketing materials other than the houses themselves. Under the 

undisputed facts, Hallmark’s use of the infringing houses satisfies not only the 

policies’ expansive definition of “advertisement” and Texas law’s similarly 

18 335 F.3d at 462-63 (emphasis added).

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broad construction of the term but also common sense.19 We therefore conclude 

that the infringing houses in this case, as used by Hallmark, all qualify as 

“advertisements” under the policies.20

C. Hallmark’s Liability In The Prior Judgment Was “Because 

Of” A Covered Advertising Injury.

The policies provide that Mid-Continent “will pay those sums that the 

insured becomes legally obligated to pay as damages because of ‘personal and 

advertising injury,’” which the policy defines as “injury . . . arising out of one 

or more of the following offenses: . . . infringing upon another’s copyright, trade 

dress or slogan in your ‘advertisement.’” Because we conclude that Hallmark 

infringed KFA’s copyright in its advertisement, the policies define the resulting 

injury as an “advertising injury,” i.e., an injury arising out of the infringement 

in the advertisement. KFA’s judgment against Hallmark therefore is because 

of that advertising injury. Under the plain language of the policy, MidContinent owes a duty to indemnify.

19 We have found one other case that addressed the use of homes in the “advertising 

injury” context, and it, too, found that such marketing triggered coverage. See King v. Cont’l 

W. Ins. Co., 123 S.W.3d 259, 265 (Mo. Ct. App. 2003) (noting that “one of the best ways to 

advertise the goods and services of a building constructor is to put signs outside of 

construction sites so that potential customers can tie the quality of workmanship to the 

builder” and that “[a] contractor putting its sign up next to the home it is building, without 

stating so, is placing it there to attract the attention of potential homebuyers.”).

20 We are not swayed by Mid-Continent’s argument that the policy excludes coverage 

for Hallmark’s marketing activities because advertising necessarily is an activity or item 

distinct from the product being advertised. See Ekco Group, Inc. v. Travelers Indem. Co. of 

Ill., 273 F.3d 409 413 (1st Cir. 2001) (“Although the term ‘advertising’ has a range of 

meanings, the one that leaps to mind in reading this policy is what is surely the most common 

use: as a reference to advertising in newspaper, radio, television, or other familiar media 

where the advertisement is an activity or item distinct from the product being advertised.”); 

and Krueger Int’l, Inc. v. Fed. Ins. Co., 647 F. Supp. 2d 1024, 1035 (E.D. Wis. 2009)) (citing 

cases for that proposition). These cases do not take into account the facts peculiar to 

Hallmark’s business and the broad policy language at issue here. Here, the use of the homes 

unquestionably was Hallmark’s primary—indeed, nearly only—means of marketing its 

services.

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Mid-Continent argues that the district court applied the wrong causation 

standard to draw a link between the prior judgment and coverage under the 

policies, but Mid-Continent has not offered any reasonable construction of the 

policy language that would preclude coverage. Mid-Continent also argues that 

to prove an “advertising injury,” a plaintiff must prove that the infringing 

advertisement swayed a particular buyer’s decision, but the policies do not 

contain such a requirement, and we find no case law to support that

proposition.

D. KFA Is Not Barred From Recovery Under The Concurrent 

Causation Doctrine.

Mid-Continent argues that even if the houses are treated as 

“advertisements,” the damages award in the prior judgment included both 

covered “advertising injury” damages (for the infringement in Hallmark’s 

advertisements, including the use of model homes) and non-covered damages 

for infringement in the construction and sale of the houses themselves. Thus, 

Mid-Continent argues, all of the damages are barred under the concurrent 

causation doctrine, citing Utica, supra. The argument is without merit because 

even assuming arguendo that we were to find two distinct kinds of 

infringement in the prior judgment, the damages would not be subject to the 

concurrent causation doctrine.

In Utica, the Texas Supreme Court explained:

Texas courts and the Fifth Circuit applying Texas law 

have recognized a distinction between cases involving 

“separate and independent” causation and 

“concurrent” causation when both covered and covered

[sic] and excluded events cause a plaintiff’s injuries. In 

cases involving separate and independent causation, 

the covered event and the excluded event each 

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independently cause the plaintiff’s injury, and the 

insurer must provide coverage despite the exclusion.21

Among other examples of the separate and independent causation doctrine, the 

court cited Guaranty Nat’l Ins. Co. v. North River Ins. Co., 909 F.2d 133, 137 

(5th Cir. 1990), in which we held that a patient’s suicide was proximately 

caused by both a hospital’s failure to secure its windows and its failure to 

supervise the patient, such that an exclusion under the policy for liability “due 

to . . . the rendering of or failure to render . . . any service or treatment 

conducive to health or of a professional nature. . .” did not apply.22

The Texas Supreme Court explained, on the other hand, that 

[i]n cases involving concurrent causation, the excluded 

and covered events combine to cause the plaintiff’s 

injuries. Because the two causes cannot be separated, 

the exclusion is triggered. See Travelers Indem. Co. v. 

Citgo Petroleum Corp., 166 F.3d 761, 771–72 (5th Cir. 

1999) (holding that, under Texas law, liability for 

failing to follow separate corporate safety standards 

was necessarily derivative of excluded negligent 

driving claim); Burlington Ins. Co. v. Mexican Am. 

Unity Council, 905 S.W.2d 359, 363 (Tex. App.-San 

Antonio 1995, no writ) (holding that, because 

negligent supervision of youth home resident and the 

assault and battery which caused her injuries were not 

“separate and independent,” an assault and battery 

exclusion applied); Thornhill v. Houston Gen. Lloyds, 

802 S.W.2d 127, 130 (Tex. App.-Fort Worth 1991, no 

writ) (holding that, because the claims were “related 

and interdependent,” sale-to-minors exclusion in 

general liability policy applied to claims that a store 

was negligent in selling alcohol to minors as well as 

training its employee on permissible purchases).23

21 141 S.W.3d at 204.

22 909 F.2d at 135.

23 Utica, 141 S.W.3d at 204.

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In the prior suit, KFA claimed that Hallmark infringed its copyright in 

a number of ways, but that infringement gave rise to a single recovery. Even 

if, as Mid-Continent urges, we could distinguish between copyright 

infringement in the construction and sale of the houses and infringement in 

Hallmark’s use of the houses as advertisements, copyright law does not 

distinguish between those infringements for purposes of damages. Under 17 

U.S.C. § 504, KFA was entitled to choose between either actual damages and 

profits (subsection (b)) or statutory damages (subsection (c)) for each 

infringement. KFA ultimately was awarded actual damages in the prior 

judgment under § 504(b):

(b) Actual Damages and Profits.--The copyright 

owner is entitled to recover the actual damages 

suffered by him or her as a result of the infringement, 

and any profits of the infringer that are attributable to 

the infringement and are not taken into account in 

computing the actual damages. In establishing the 

infringer’s profits, the copyright owner is required to 

present proof only of the infringer’s gross revenue, and 

the infringer is required to prove his or her deductible 

expenses and the elements of profit attributable to 

factors other than the copyrighted work.24

In essence, copyright law would have granted KFA the full recovery for 

any type of infringement. There is no correlation between one type of 

infringement and any other. Because infringement in an advertisement would 

give rise to precisely the same damages as infringement by construction and 

sale, the two causes are separate and independent, and the full recovery 

therefore is covered as an advertising injury.

IV. MID-CONTINENT HAS NOT ASSERTED A VIABLE DEFENSE.

Because we conclude that KFA has satisfied its burden of proving 

coverage under the terms of the policies, the burden shifts to Mid-Continent to 

24 17 U.S.C. § 504(b) (West 2012).

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prove that an exclusion applies.25 If Mid-Continent succeeds in doing so, the 

burden shifts back to KFA to prove some exception to the exclusion.26 In this 

coverage, suit, however, Mid-Continent may be barred from re-litigating an 

issue if: “(1) the issue raised in the coverage suit was raised and determined in 

the liability suit; (2) the issue determined in the liability suit was essential to 

the judgment in the liability suit; and (3) the necessary requirement of privity 

exists between the insurer and the insured.”27 It is clear that Mid-Continent 

was in privity with Hallmark for the liability issues (i.e., whether or not 

Hallmark committed copyright infringement) but was not in privity with 

respect to coverage issues.

A. Mid-Continent Has Failed To Prove That The Breach Of 

Contract Exclusion Applies.

Mid-Continent relies on the rule that if an exclusion is even incidentally 

related to conduct that would otherwise be covered, the exclusion trumps.28

Mid-Continent first points to the policies’ breach of contract exclusion, which

provides:

f. Breach of Contract

“Personal and advertising injury” arising out of a 

breach of contract, except an implied contract to use 

another’s advertising idea in your “advertisement”.

Mid-Continent relies on the fact that KFA and Hallmark had entered 

into at least three architectural services agreements. It argues that Hallmark’s 

failure to prepay for the reuse licenses of KFA’s designs constituted a breach 

of contract. Mid-Continent relies on the testimony of KFA’s representative at 

25 Gilbert Texas Const., L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118, 124 

(Tex. 2010).

26 Id.

27 Mid-Continent Cas. Co. v. Bay Rock Operating Co., 614 F.3d 105, 110 (5th Cir. 2010)

(Bay Rock). 28 Mid-Continent cites Sport Supply, supra; and Gemini Ins. Co. v. The Andy Boyd Co. 

LLC, 243 F. App’x 814, 815 (5th Cir. 2007).

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trial that Hallmark failed to follow the contract’s requirement to notify KFA of 

its intent to reuse KFA’s designs.

In the prior suit, KFA stated a claim only for copyright infringement, not 

breach of contract, and neither KFA nor Hallmark argued in the prior trial 

that Hallmark breached the agreements. KFA contended that the 

consequences of Hallmark’s failure to secure a reuse license were already 

addressed in the agreements themselves by stipulating that Hallmark’s 

licenses would lapse. Notwithstanding the agreements’ provisions terminating 

its licenses, Hallmark argued unsuccessfully that KFA never terminated the 

agreements, so it had granted Hallmark an implied license to continue using 

KFA’s designs. The agreements provided, in relevant part:

Client’s failure to pay all charges for services 

requested by Client, including fees for purchase of 

license for reuse of plan(s), shall make this granting of 

the right to reuse plan(s) null and void. Client’s right 

to reuse plans lapses if Client fails to report 

construction and remit payment for license for a period 

of one year, or fails to report construction for 

application of prepaid license fees for a period of one 

year.

The entire prior suit was based on copyright infringement, which could 

only have arisen after the clause stripped Hallmark of its license. All of the 

damages in the prior judgment arose under copyright law, not breach of 

contract law. These facts, coupled with the fact that neither KFA nor Hallmark

ever argued there was a breach of contract, suggest that the prior judgment 

was not related to breach of contract. We conclude that Mid-Continent has 

failed to carry its burden of proving that the breach of contract exclusion 

applies.

B. Mid-Continent Has Failed To Prove That The “Prior 

Publication” Exclusion Applies.

Mid-Continent also argues that the “prior publication” exclusion applies:

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c. Material Published Prior To Policy Period

“Personal and advertising injury” arising out of oral or 

written publication of material whose first publication 

took place before the beginning of the policy period.

Mid-Continent claims that the purpose of the exclusion is to preclude 

coverage where the risk had already materialized prior to the beginning of 

coverage. There is some question as to whether the exclusion would apply to a 

string of distinct acts of copyright infringement, as opposed to the situation 

where an advertisement was published prior to the policy period but continued 

to give rise to harm afterward.29 We need not address that issue here, however, 

because under the broadest interpretation, Mid-Continent has failed to carry 

its burden of proving the exclusion applies.

The first policy period began on May 28, 2004. Mid-Continent has not 

pointed to any infringement or other advertising injury prior to that date. MidContinent asserts, for example, that KFA provided artwork for a certain house 

plan, the Versailles model, in 2003, and that Hallmark began using it in 

brochures that were available in model homes within a month. It also points 

to the fact that Hallmark put the Versailles plan on its website prior to May 

28, 2004. The record also shows that the Versailles model was first built or sold 

on January 13, 2004. The record reveals was no other home built prior to May 

28, 2004. Because Hallmark retained its license until it built the second copy 

of the home without a reuse license, none of the pre-policy conduct infringed 

KFA’s copyright. Even under a broad construction of the “prior publication”

exclusion, Mid-Continent has not carried its burden of proving that any 

“advertising injury” occurred prior to the first policy period.

29 See, e.g., Ryland Grp., Inc. v. Travelers Indem. Co. of IL, No. CIV. A-00-CA-233 JRN, 

2000 WL 33544086, at *8 (W.D. Tex. Oct. 25, 2000) (footnotes omitted) (discussing cases).

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Next, Mid-Continent argues that the prior publication exclusion applies 

to each infringing advertisement within the policy periods, so Mid-Continent 

is not liable to pay under later policy periods for advertisements that were first 

published under earlier policy periods. Because the five insurance agreements 

are virtually identical and Mid-Continent remained the insurer throughout, 

Mid-Continent still would be liable for the consequences of the advertising 

injuries, all of which began during a covered period. Mid-Continent has shown 

no reason why the distinction would make a difference. In sum, the “prior 

publication” exclusion does not apply to these facts.

C. Mid-Continent Is Not Entitled To Assert A Defense To The 

Copyright Infringement Because The Issue Of Copyright 

Infringement Was Adjudicated In The Prior Suit.

Next, Mid-Continent argues that, under § 120(a) of the Architectural 

Works Copyright Protection Act, 17 U.S.C. § 120(a), Hallmark’s use of KFA’s 

designs did not actually constitute copyright infringement. Even though the 

prior case involved copyright infringement, Mid-Continent claims it is not 

barred from litigating this issue now because it is a “coverage defense.”

In connection with coverage, Mid-Continent cannot ignore or relitigate 

facts actually established in the prior liability case.30 The jury in the prior suit

specifically determined that Hallmark infringed KFA’s copyright. Because 

Mid-Continent’s § 120(a) defense would require the court to overturn that 

finding, Mid-Continent may not assert it.

D. KFA Sufficiently Established The Amount Of Its Damages.

Mid-Continent argues that the policies cover when offenses occur and 

not when sales occur, so KFA cannot recover unless it ties each particular 

offense to one of the five policy periods rather than treating them as one fiveyear policy. As established above, Mid-Continent has not pointed to any offense 

30 Bay Rock, 614 F.3d at 110.

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that took place prior to the first policy period. Mid-Continent also has not 

shown that KFA was awarded damages for any offense or sale that took place 

after the policy periods. Thus, all offenses or sales for which the district court 

awarded KFA damages must have taken place within one of the five policy 

periods. Mid-Continent was the insurer during all five policy periods. At best, 

this argument presents a distinction without a difference.

V. KFA IS ENTITLED TO THE FULL AWARD OF ATTORNEY’S 

FEES.

Finally, Mid-Continent argues that, even if KFA wins on the coverage 

issue and is therefore entitled to attorney’s fees under Tex. Civ. Prac. & Rem. 

Code § 38.001 for breach of the insurance contract, the district court erred in 

awarding fees based on the contingency fee agreement between KFA and its 

attorneys minus a reduction for time spent outside of the breach of insurance 

contract claim, which represents a total recovery outside of costs of 33.8%.31

Mid-Continent argues that Texas requires lodestar evidence for attorney’s fees. 

That is not accurate. Texas courts permit otherwise reasonable contingency fee 

awards under § 38.001.

Interpreting Texas law, the Fifth Circuit permitted the imposition of a 

contingency fee in Mathis v. Exxon Corp., 302 F.3d 448 (5th Cir. 2002):

First, there is a rebuttable presumption of 

reasonableness for fees that are “usual” or 

“customary.” Tex. Civ. Prac. & Rem. Code § 38.003 

(Vernon 2002). Second, where the fees are tried to the 

court, as they were in this case, the statute authorizes 

the judge to take judicial notice of the “usual and 

customary fees” and the contents of the case file. Id. at 

§ 38.004. Texas courts have upheld fee awards using 

these presumptions where the attorneys had a 

contingent fee arrangement. Laredo Indep. Sch. Dist. 

v. Trevino, 25 S.W.3d 263 (Tex. App.—San Antonio 

31 The district court awarded a net fee of $1,091,362.72, compared to the underlying 

judgment of $3,231,084.00, or approximately 33.8% of the judgment.

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2000, review denied) (40% contingency fee); European 

Crossroads’ Shopping Ctr., Ltd. v. Criswell, 910 

S.W.2d 45, 58–59 (Tex. App.—Dallas 1995, writ 

denied) (upholding jury award of 35% based only on 

attorney’s own testimony). Plaintiffs’ attorneys 

supported their fees by submitting an affidavit drafted 

by lead counsel and an affidavit of an attorneys’ fees 

expert. Exxon countered by challenging the 

reasonableness of the total award. Under Texas law, 

the two affidavits, combined with the presumption of 

reasonableness and the court’s ability to use judicial 

notice to guide the reasonableness finding is enough 

for us to conclude that the district court did not abuse 

its discretion in awarding fees as contemplated by 

plaintiffs’ contingency fee contract.32

The Texas Supreme Court recently noted that lodestar evidence is not 

required for contingency fee awards but is required if a claimant wants to go 

above the contingency fee calculation:

In addition to the lodestar method, the attorney’s fee 

affidavit also indicates the Griffins and their attorneys 

agreed to a 35% contingency fee arrangement, which 

the affidavit claims is reasonable and customary for 

such a suit. Even if supporting evidence is not required 

for the contingency fee method of proof (as it is for the 

lodestar method), the contingency fee method cannot 

support the trial court’s fee award here because the 

final judgment awarded no monetary relief except for 

attorney’s fees. Because the contingency fee method 

cannot support the trial court’s fee award, and no 

legally sufficient evidence supports the award under 

the lodestar method, we remand to redetermine 

attorney’s fees.33

Mid-Continent’s argument rests entirely on the proposition that KFA 

failed to submit lodestar evidence. Because Texas law does not require lodestar 

evidence for contingency fee arrangements and because Mid-Continent has not 

32 Id. at 462 (footnote omitted).

33 Long v. Griffin, 442 S.W.3d 253, 256 (Tex. 2014) (emphasis added).

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shown that the fee is unreasonable, we cannot say that the district court 

abused its discretion in awarding the fee.

VI. CONCLUSION

For the reasons set forth above, we AFFIRM.

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