UNITED STATES COURT OF APPEALS

For the Fifth Circuit

No. 96-11537

H R MANAGEMENT COMPANY,

Plaintiff-Appellant

VERSUS

ZURICH INSURANCE COMPANY, ET AL,

Defendants

ZURICH INSURANCE COMPANY,

Defendant-Counter Claimant-Appellee

VERSUS

ATLANTIC LLOYDS INSURANCE COMPANY OF TEXAS, INC.,

Counter Defendant-Appellant

_____________________________

No. 96-10987

_____________________________

H R MANAGEMENT COMPANY,

Plaintiff-Appellant-Cross Appellee

VERSUS
1Pursuant 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opinion should not be published and is not precedent except under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.

2

ZURICH INSURANCE COMPANY, ET AL,

Defendants

ZURICH INSURANCE COMPANY,

Defendant-Counter Claimant-Appellee

Cross Appellant

VERSUS

ATLANTIC LLOYDS INSURANCE COMPANY OF TEXAS, INC.,

Counter Defendant-Appellant

-Cross Appellee

Appeal from the United States District Court

For the Northern District of Texas

(3:93-CV-2059-T)

February 10, 1998

Before JOLLY, DUHÉ, and PARKER, Circuit Judges.

JOHN M. DUHÉ, JR., Circuit Judge:1

H R Management (“HRM”) sued Zurich Insurance (“Zurich”) for

settling claims against two of its co-insureds and thereby

exhausting the policy limit of liability. HRM claimed breach of

contract and the duty of good faith and fair dealing, deceptive

trade practices under the Texas Deceptive Trade Practices Act

(“DTPA”), Texas Insurance Code violations, tortious interference

with contract, and civil conspiracy. The district court granted
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summary judgment in Zurich’s favor. HRM appeals.

I.

Westwood Savings and Loan Association (“Westwood”) owned

Fondren Green Apartments in Houston, Texas. Westwood hired HRM to

manage the apartments which HRM did until January 1987. On that

date, Westwood hired RFG Management (“RFG”) to manage the

apartments. 

Westwood had an insurance policy with Zurich which provided

Westwood with comprehensive general liability coverage from April

1, 1986 to April 1, 1987. The policy included a provision adding

as an insured any person or organization who acted as Westwood’s

real estate manager. In addition, HRM had an excess insurance

policy with Atlantic Lloyd’s Insurance (“Atlantic”). 

In 1988, former Fondren Green tenants and employees sued

Westwood, HRM, and RFG for damages allegedly caused by spraying

chlordane, a toxic chemical, in the apartments. In 1991, Zurich

accepted the Fondren Green plaintiffs’ offer to settle completely

their claims against Westwood and RFG. Zurich paid the plaintiffs

$1 million, the limit of liability stated in the policy. After

Zurich settled, it withdrew from participating further in HRM’s

defense; however, Atlantic continued to defend HRM. HRM later

settled with the Fondren Green plaintiffs for $10.3 million which

Atlantic paid.

In 1993, HRM sued Zurich claiming that Zurich breached its
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contract with HRM by paying all policy benefits on behalf of RFG

and Westwood. Zurich counterclaimed against HRM and added Atlantic

as a third party. Zurich also sought a declaratory judgment as to

the rights and duties of the parties under Zurich and Atlantic’s

policies as well as subrogation, contribution, and indemnity from

Atlantic.

HRM moved for partial summary judgment on the breach of

contract claim to which Zurich responded by filing a cross-motion

for summary judgment. HRM then moved for partial summary judgment

a second time arguing that Zurich had not exhausted the policy’s

limit before it withdrew from defending HRM. Zurich responded by

moving for summary judgment on the breach of contract and duty of

good faith and fair dealing claims as well as the insurance code

violations, tortious interference, and civil conspiracy claims.

Zurich also filed a cross motion for summary judgment responding to

the second motion for partial summary judgment. There, Zurich

successfully argued that the pollution exclusion clause precluded

coverage. The court dismissed Zurich’s counterclaim for

declaratory judgment without prejudice and dismissed as moot

Zurich’s counterclaim for subrogation, contribution, and indemnity.

HRM and Atlantic appealed, and the cases were consolidated.

II.

A. STANDARD OF REVIEW
5

Although both parties failed to include in their briefs this

required information, we review a grant of summary judgment de

novo. Lulirama Ltd, Inc. v. Axcess Broad. Serv., Inc., 128 F.3d

872, 876 (5th Cir. 1997); Texas Manufactured Hous. Ass’n v. City of

Nederland, 101 F.3d 1095, 1099 (5th Cir. 1996), cert. denied, 117

S. Ct. 2497 (1997). A court will grant summary judgment if “the

pleadings, depositions, answers to interrogatories, and admissions

on file, together with the affidavits. . . show that there is no

genuine issue as to any material fact and that the moving party is

entitled to a judgment as a matter of law.” FED. R. CIV. PRO. 56(c).

B. ANALYSIS

Although the district court granted summary judgment based on

the Zurich policy’s pollution exclusion clause, we affirm on other

grounds. Therefore, we assume arguendo that the pollution

exclusion clause does not apply.

Zurich argues that even if the policy covers HRM, it owes HRM

nothing because it properly exhausted the policy’s $1 million limit

when it settled all claims against RFG and Westwood. Moreover,

Texas law does not require it to divide the policy limit among

multiple insureds. See Texas Farmers Ins. Co. v. Soriano, 881

S.W.2d 312 (Tex. 1994). There the Texas Supreme Court held that an

insured may enter into a reasonable settlement with one of several

claimants even though the settlement exhausts the proceeds

available to satisfy other claims. Id. at 315. 
2HRM argues that the policy was not exhausted because the million

dollar limit is per occurrence and there were two occurrences.

Thus, the policy limit is two million dollars. We address that

argument below.

6

HRM argues that Soriano is distinguishable because that case

dealt with multiple claimants not multiple insureds. Moreover, it

argues, Zurich had a contractual duty to treat all three insureds

equally. Thus, by settling only claims against RFG and Westwood,

Zurich breached its contract. In support of that argument, HRM

cites the following policy provision:

“‘Insured’ means any person or organization

qualifying as an insured in the ‘person insured’

provision of the applicable insurance coverage. The

insurance afforded applies separately to each

insured against whom claim is made or suit is

brought, except with respect to the limits to the

company’s liability. . . Except with respect to the

Limits of Insurance and any rights or duties

specifically assigned in this policy to the first

‘Named Insured’, this insurance applies: (1) As if

each ‘Named Insured’ were the only ‘Named Insured’;

(2) Separately to each ‘Insured’ against whom the

claim is made or ‘suit’ is brought.” [emphasis

added]

HRM asks this Court to interpret this language to mean that Zurich

had to divide the $1 million coverage equally among its insureds.

We disagree.

First, the policy specifically states that the insurance

afforded applies to each insured separately, but only to the limits

of the policy. Therefore, if $1 million is the limit of the

policy2, then Zurich had a contractual duty to treat HRM, RFG, and

Westwood separately but only until it paid the policy limit.
7

However, we do not look only to the language of the policy itself.

As Zurich argues, HRM’s attempts to distinguish Soriano from

this case fails. The fact that here there are multiple insureds

while Soriano involved multiple claimants is a difference without

a distinction. In Soriano, the Texas Supreme Court held that the

insurer was not negligent or acting in bad faith when it settled

with one claimant which then reduced the amount it could pay the

other, more seriously injured claimant. Soriano, 881 S.W.2d at

314. As the Court pointed out, under Texas law an insurer must

settle with a claimant if the settlement demand is 1) within the

scope of coverage; 2) within policy limits; and 3) reasonable such

that an ordinarily prudent insurer would accept it, considering the

likelihood and degree of the insured’s potential exposure to an

excess judgment. Id., citing American Physicians Ins. Exchange v.

Garcia, 876 S.W.2d 842, 848-49 (Tex. 1994), and G.A. Stowers

Furniture Co. v. American Indem. Co., 15 S.W.2d 544 (Tex. Comm’n

App. 1929, holding approved). Thus, under Texas law Zurich had to

settle with RFG and Westwood’s claimants as long as the settlement

fit the American Physicians criteria. We hold that the RFG and

Westwood settlement fit those criteria. First, the demand was

within the scope of coverage. While arguably the pollution

exclusion clause could preclude coverage, the defense is for Zurich

to assert. Since it did not assert that defense, Zurich

acknowledged that the claim was within the scope of coverage.

Second, the demand of $1 million was within the policy limit.
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Finally, the demand was reasonable. HRM settled its claims for

$10.3 million; therefore, settling similar claims for only $1

million is eminently reasonable. Because the settlement demands

fall within the criteria, Zurich had a duty under Texas law to

settle with the RFG and Westwood claimants for $1 million. As the

Texas Supreme Court stated, “an insurer may enter into a reasonable

settlement with one of the several claimants even though such

settlement exhausts . . . the proceeds available to satisfy other

claims.” Soriano, 881 S.W.2d at 315. We are persuaded that the

same holds true with multiple insureds.

HRM’s next argument is that even if the above is true, Zurich

still breached its contract because the policy limit was not

exhausted. HRM contends that the policy limit was $1 million per

occurrence. Because HRM and RFG each sprayed chlordane in the

Fondren Apartments once, there were two occurrences. Thus, the

policy limit is $2 million. However, this argument ignores the

clear language of the policy. The policy schedule clearly states

that the aggregate limit of the policy is $1 million. Therefore,

we hold that once Zurich settled RFG and Westwood’s claims for $1

million it exhausted its policy limits.

HRM claims damages in the form of attorney’s fees incurred by

reason of Zurich’s failure to defend. HRM, however, suffered no

damages because its defense costs were paid by its other insurer,

Atlantic. 

We affirm the district court’s grant of summary judgment in
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favor of Zurich. We also affirm the district court’s holding that

Zurich prevailed in this proceeding, hence is entitled to recover

its court costs. As a result, the district court’s dismissal

without prejudice of Zurich declaratory judgment as well as its

dismissal of Zurich’s counterclaims is also affirmed.

As for the motions filed with this Court, we grant the motions

to supplement the record and to file exhibits under seal, but we

deny Zurich’s motion for sanctions.

AFFIRMED.