IN THE UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF TEXAS

FORT WORTH DIVISION

LIBERTY MUTUAL INSURANCE §

COMPANY, §

§

Plaintiff, §

§

VS. § NO. 4:04-CV-897-A

§

PAUL M. GRAHAM, §

§

Defendant. §

MEMORANDUM OPINION

and

ORDER

Came on for consideration the motion of plaintiff, Liberty

Mutual Insurance Company, for summary judgment. The court,

having considered the motion, the response of defendant, Paul M.

Graham, the reply, the record, the summary judgment evidence, and

applicable authorities, finds that the motion should be granted.

I.

Plaintiff's Claims

On December 9, 2004, plaintiff filed its original, and on

December 16, 2004, its first amended, complaint for declaratory

judgment. Plaintiff seeks declarations that (a) it has no

payment obligation as to claims made against defendant in a

lawsuit styled "Mikel Johnson, et al. v. Paul M. Graham, et al.,"

Cause No. 348-205932-04, pending in the 348th Judicial District

Court of Tarrant County, Texas ("the underlying lawsuit"),

because at the time of the accident on which the suit is based

defendant was not an insured under its policy number AS1-191-

419045-023 (the "policy") plaintiff had issued to Eagle

 

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Contracting, L.P., ("Eagle"), and (b) there being no duty to pay,

plaintiff has no duty to provide a defense to defendant in the

underlying lawsuit.

II.

Ground of the Motion

Plaintiff urges that it is entitled to a declaration that it

has no duty to pay on behalf of defendant any damages assessed

against him in the underlying lawsuit, because the summary

judgment record establishes that defendant was not an insured

under the policy, and that, for that reason, plaintiff had no

obligation to provide defendant a defense in the underlying suit. 

To be an insured at the time of the accident giving rise to the

claims being made against defendant in the underlying suit,

defendant would have to have been using the vehicle he was

operating with Eagle's permission at that time. When Eagle

furnished the vehicle to defendant, it gave defendant permission

to use it for business purposes only. At the time of the

accident, defendant was not using the vehicle for business

purposes; rather, he was on a purely personal venture when he was

involved in the accident after drinking alcohol late into the

evening.

III.

Objections to the Summary Judgment Evidence

Defendant devotes the first part of his brief to objections

to plaintiff's summary judgment evidence. The court is not

striking any of the summary judgment evidence but, as is its

 

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custom, will give the evidence whatever weight, if any, it may

deserve.

IV.

Applicable Summary Judgment Principles

A party is entitled to summary judgment on all or any part

of a claim as to which there is no genuine issue of material fact

and as to which the moving party is entitled to judgment as a

matter of law. Fed. R. Civ. P. 56(c); Anderson v. Liberty Lobby,

Inc., 477 U.S. 242, 247 (1986). The moving party has the initial

burden of showing that there is no genuine issue of material

fact. Anderson, 477 U.S. at 256. The movant may discharge this

burden by pointing out the absence of evidence to support one or

more essential elements of the non-moving party's claim "since a

complete failure of proof concerning an essential element of the

nonmoving party's case necessarily renders all other facts

immaterial." Celotex Corp. v. Catrett, 477 U.S. 317, 323-25

(1986). Once the moving party has carried its burden under Rule

56(c), the non-moving party must do more than merely show that

there is some metaphysical doubt as to the material facts. 

Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S.

574, 586 (1986). The party opposing the motion may not rest on

mere allegations or denials of pleading, but must set forth

specific facts showing a genuine issue for trial. Anderson, 477

U.S. at 248, 256. To meet this burden, the nonmovant must

"identify specific evidence in the record and articulate the

'precise manner' in which that evidence support[s] [its]

 

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claim[s]." Forsyth v. Barr, 19 F.3d 1527, 1537 (5th Cir. 1994). 

An issue is material only if its resolution could affect the

outcome of the action. Anderson, 477 U.S. at 248. Unsupported

allegations, conclusory in nature, are insufficient to defeat a

proper motion for summary judgment. Simmons v. Lyons, 746 F.2d

265, 269 (5th Cir. 1984).

The standard for granting a summary judgment is the same as

the standard for rendering judgment as a matter of law. Celotex

Corp., 477 U.S. at 323. If the record taken as a whole could not

lead a rational trier of fact to find for the non-moving party,

there is no genuine issue for trial. Matsushita, 475 U.S. at

597. See also Boeing Co. v. Shipman, 411 F.2d 365, 374-75 (5th

Cir. 1969) (en banc) (explaining the standard to be applied in

determining whether the court should enter judgment on motions

for directed verdict or for judgment notwithstanding the

verdict). 

V.

Undisputed Evidence

The following is an overview of evidence pertinent to the

motion for summary judgment that is undisputed in the summary

judgment record:

 

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November 11, 2003, was defendant's fortieth birthday. 

Defendant drove Eagle's pickup truck directly to his home from

the place (approximately five miles from his home) where he was

performing his work for Eagle. He arrived home between 5:10 and

6:10 p.m. Defendant typically went home, ate dinner, and watched

television. Even though it was his birthday, he had no plans for

the evening. At some point late in the evening, as defendant was

just about ready for bed, he received a telephone call from a

woman he met and to whom he had given his telephone number. The

woman suggested that they go out, because it was defendant's

birthday. Defendant, by use of Eagle's pickup truck, met the

woman at a restaurant near the intersection of Highways 820 and

35 in north Fort Worth, approximately fifteen miles from

defendant's home. While at the restaurant, defendant had several

drinks. 

At approximately 1:00 a.m. on November 12, 2003, about two

hours after the restaurant closed, defendant, while operating

Eagle's pickup truck, struck a motorcycle being driven by Mikel

Johnson ("Johnson"). Christy Wright ("Wright") was a passenger

on the motorcycle. Both vehicles were eastbound on Alliance

Gateway Freeway in Fort Worth, Texas, when the collision that

gave rise to the underlying lawsuit occurred. Defendant fled the

scene. When apprehended, he was arrested and charged with

driving while intoxicated.

At the time of the collision, defendant was an employee of

Eagle, which had provided him and three other employees company-

 

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owned vehicles. When defendant received his pickup, he signed a

written acknowledgment of receipt of the Eagle vehicle policy,

which provided, in pertinent part:

b. Usage of the vehicle must be limited to

company-related business. Use of this vehicle is

intended to make your job easier, more efficient and

profitable. You are encouraged to use it as such.

c. Employees receiving this benefit agree to

abide by all local, state and federal laws regarding

motor vehicle usage. Violation of these laws will

result in the loss of this privilege. 

Pl.'s App. at 18. On November 18, 2003, Eagle revoked

defendant's privilege of driving a company vehicle as a result of

his having violated the above-referenced provisions of the

vehicle policy. 

The "Business Auto Coverage" part of the insurance policy

issued by plaintiff to Eagle covered the pickup truck defendant

was driving at the time of the collision. The payment and

defense obligations under the Business Auto Coverage Form are

worded as follows:

We will pay all sums an insured legally must pay as

damages because of bodily injury or property damage to

which this insurance applies, caused by an accident and

resulting from the ownership; maintenance or use of a

covered auto.

We have the right and duty to defend any suit asking

for these damages. However, we have no duty to defend

suits for bodily injury or property damage not covered

by this Coverage Form. We may investigate and settle

any claim or suit as we consider appropriate.

Id. at 165. The policy defined the word "insured," as used in

the foregoing policy language, as follows:

1. WHO IS AN INSURED

 

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As used in the insurance policy, the words "you" and "your,"

which are replaced by the bracketed "the named insureds," refer to

the named insureds. Pl.'s App. at 164.

 

2

Eagle Contracting, Inc., is a predecessor of Eagle Contracting,

L.P.

 

3

The pickup truck defendant was operating was registered in the

names of both Eagle Contracting, L.P., and Billy Haynes.

7

 The following are insureds:

 a. [The named insureds] for any covered auto.

 b. Anyone else while using with [the named

insureds'] permission a covered auto [the named

insureds] own, hire or borrow . . . .1

Id. Defendant was not a named insured under the policy. 

On June 4, 2004, Johnson and Wright filed the underlying

lawsuit. They have sued defendant for negligence and negligence

per se under the Texas Transportation Code and Texas Penal Code;

Eagle Contracting, Inc.,2 for negligent entrustment; Eagle, under

theories of respondeat superior and negligent entrustment; and

Billy Haynes3 under theories of respondeat superior and negligent

entrustment. 

With regard to defendant's use of the vehicle, Johnson and

Wright allege in the underlying lawsuit that:

12. At the time of the incident complained of,

Defendant Graham was driving a Truck registered to his

employer, Eagle Contracting L.P. and Billy Haynes. 

Such vehicle was entrusted to Defendant Graham by

Defendant Eagle Contracting L.P. and Billy Haynes, a

partner of Eagle Contracting, L.P. on or about January

29, 2001 as a part of his job with Eagle Contracting

Corporation and as a method of remuneration for

services performed by Graham for Defendant Eagle

Contracting, L.P., Eagle Contracting Corporation and

Billy Haynes. Eagle Contracting L.P. and Billy Haynes

primary reason for obtaining company vehicles for its

key employees was to allow it to be more competitive in

 

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recruiting and maintaining employees and to encourage

use of the vehicles by company employees. Paul Graham

has a long history of permissive use of the vehicle

notwithstanding any written or unwritten policies to

the contrary. Eagle Contracting, LP, Billy Haynes, a

partner, and Charles Howard, president and managing

partner, all knew and condoned the use of a company

vehicle by Graham and other employees in violation of

purported policies of Eagle Contracting L.P. Eagle

Contracting, L.P. specifically authorized and allowed

Graham to drive a company vehicle after he had been

drinking alcoholic beverages on multiple occasions. 

Eagle Contracting, L.P. has regular company functions

where they serve alcoholic beverages to employees and

allow them to drive away in company vehicles. Eagle

Contracting L.P. has no effective or even attempted

policy or practice to regulate personal use of vehicles

other than presentation of a single sheet of cautionary

paper at the time of the presentation of the truck to

the employee. Billy Haynes and Charles Howard both

knew of and approved Paul Graham to use his company

vehicle to drive to see his children in East Texas. 

Partner Billy Haynes had Graham drive to his house in

the company truck to go fishing together. Billy Haynes

and President/Managing partner Charles Howard knew

Graham drank alcohol and then drove the company truck. 

Graham had permission from Partner/supervisor Billy

Haynes to even allow Graham's wife to drive the truck. 

Any purported policy or practice enforcing the policy

against driving company vehicles for personal use or

even when intoxicated was abrogated when employee,

Harlan Ennis, was arrested for Driving While

Intoxicated in a Eagle Contracting L.P. vehicle and

Harlan Ennis received no limitation on his right to

drive the company vehicle nor any punishment for his

breach of this purported policy for over six (6) months

while his DWI case was pending even though the company

was privy to the fact that Harlan Ennis had blown an

intoxilyzer test result far in excess of the legal

intoxication presumption in Texas. Eagle Construction

L.P. knew or presumed that some or all of its employees

used their company vehicles for personal use. Paul

Graham had all of his gasoline and maintenance costs

reimbursed by Eagle Contracting, L.P. He and all other

Eagle Construction, L.P. employees were required to

submit copies of all of his gas receipts to the company

for reimbursement. Eagle Construction L.P. had

receipts in its possession for months and years clearly

indicative of the use of Graham's company vehicle for

personal use. Yet, Eagle Contracting, L.P. never even

asked Graham about his personal use of the vehicle much

less limited its use. Eagle Construction, L.P. had no

 

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policy or practice to inquire into the use of the

company vehicles driven by company employees to assure

compliance with its alleged policies. Even Billy

Haynes, a company partner and direct supervisor of Paul

Graham and Charles Howard, the company President and

managing partner, have used their company vehicles for

personal use on occasion. Charles Graham was never

told directly that he was not to drink and drive and

was never told not to use the company vehicle for

personal use. Charles Howard, President and managing

Partner of Eagle Construction, L.P., each year provided

a list of names of company personnel who were

authorized to drive company cars to Liberty Mutual

Insurance Company. Liberty Mutual themselves could

have inquired into the use and driving history of the

employees but they chose only to verbally inquire of

Charles Howard. The night of the incident which forms

the basis of this lawsuit was the fortieth (40)

Birthday of Defendant Paul Graham. Eagle Contracting,

L.P., Billy Haynes and Eagle Contracting Corporation

regularly allow some of its employees, including

Defendant Graham, to drive business vehicles in pursuit

of personal activities. In this instance, Graham had

earlier parked his company vehicle behind his personal

car at his home and use of the company vehicle to go to

a restaurant and bar was a matter of convenience and

necessity to him.

Id. at 3-5 (errors in original).

Defendant demanded that plaintiff defend him in the

underlying lawsuit. However, plaintiff rejected defendant's

demand, maintaining that defendant was not an insured under the

policy. (Plaintiff is defending the remaining defendants in the

underlying lawsuit.) 

VI.

Whether Plaintiff has a Duty to Defend

Defendant in the Underlying Lawsuit

Texas applies the "eight corners" rule whereby an insurer's

duty to defend its insured is determined by the allegations in

the pleadings and the language of the insurance policy. National

Union Fire Ins. Co. v. Merchants Fast Motor Lines, Inc., 939

 

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S.W.2d 139, 141 (Tex. 1997). However, the court "may look at

evidence outside the pleadings under certain circumstances." 

Guaranty Nat'l Ins. Co. v. Vic Mfg. Co., 143 F.3d 192, 194 (5th

Cir. 1998). The rule is:

Where the insurance company refuses to defend its

insured on the ground that the insured is not liable to

the claimant, the allegations in the claimant's

petition control, and facts extrinsic to those alleged

in the petition may not be used to controvert those

allegations. But, where the basis for the refusal to

defend is that the events giving rise to the suit are

outside the coverage of the insurance policy, facts

extrinsic to the claimant's petition may be used to

determine whether a duty to defend exists.

Id. (quoting Gonzales v. Am. States Ins. Co., 628 S.W.2d 184, 187

(Tex. Civ. App.--Corpus Christi 1982, no writ)). As this court

has noted:

[A] person who is not an insured under an insurance

policy is [not] to be treated as one for defense

purposes just because of false allegations made by the

damage suit plaintiff. The status of the 'insured' is

to be determined by the true facts, not false,

fraudulent or otherwise incorrect facts that might be

alleged by a personal injury claimant.

Blue Ridge Ins. Co. v. Hanover Ins. Co., 748 F. Supp. 470, 473

(N.D. Tex. 1990). None of the cases cited by defendant holds to

the contrary. Rather, each concerns a determination of whether

an insurer has a duty to defend an insured. See Northfield

Insurance Co. v. Loving Home Care, Inc., 363 F.3d 523, 531 n.3

(5th Cir. 2004) (distinguishing an earlier Fifth Circuit case

where extrinsic evidence was allowed to determine the fundamental

issue of whether the property involved was indeed insured under

the policy). 

 

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The allegations tend to show that defendant's non-business use

of the vehicle on other occasions was with permission of Eagle

Contracting, L.P.'s owners. References to drinking and driving

appear to be related to company-sponsored events.

11

Here, plaintiff contends that there is no duty to defend,

because defendant was not an insured at the time of the accident. 

Looking only at the allegations of the pleading in the underlying

lawsuit, the state court plaintiffs have not pleaded that

defendant was "using with [Eagle's] permission a covered auto" on

the night in question. Rather, they refer in a conclusory way to

a number of unrelated events, many involving other vehicles and

persons.4 The summary judgment evidence reinforces the

conclusion that defendant was not using the vehicle for business

purposes at the time of the accident. Old Am. County Mut. Fire

Ins. Co. v. Renfrow, 130 S.W.3d 70 (Tex. 2004); Coronado v.

Employers' Nat'l Ins. Co., 596 S.W.2d 502 (Tex. 1980).

A conclusion that, under the summary judgment record of this

case, plaintiff has no defense or payment obligation related to

the claims being asserted against defendant in the state court

action comes directly within the expectations of the parties to

the insurance contract. The coverage is designated as "Business

Auto Coverage." For there to be a payment obligation, the claims

must be against an "insured." There is no summary judgment

evidence that defendant was an insured of plaintiff under the

business policy at the time of the accident because there is no

summary judgment evidence that he was using the vehicle with the

permission of his employer at that time. Indeed, the summary

 

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judgment evidence affirmatively establishes lack of permissive

use at the time of the accident. The defense obligation part of

the business insurance coverage explicitly requires that the suit

in question be one asking for damages for which the insurance

company has a payment obligation. The summary judgment record

establishes without dispute that there are no damages claimed

against defendant for which the insurance company has any payment

obligation. The law is quite clear that, under those

circumstances, the insurance company has neither a payment nor a

defense obligation. See McLaren v. Imperial Cas. & Indem. Co.,

767 F. Supp. 1364, 1374-75 (N.D. Tex. 1991), aff'd, 968 F.2d 17

(5th Cir. 1992).

Eagle might well have liability to the state court

plaintiffs under a negligent entrustment, or some similar, theory

based on the facts alleged in the state court pleading, supra at

8-10, but that is not the issue here. In this action, the issue

is whether the contractual obligations undertaken by plaintiff in

its policy contract with Eagle cause plaintiff to have payment

and defense obligations to defendant in reference to the claims

being made against defendant in the underlying lawsuit. There is

no summary judgment evidence that would support a conclusion that

plaintiff has any such obligation under the business insurance

policy. Rather, the undisputed evidence establishes that it has

no such obligation. 

 

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VII.

Order

For the reasons discussed herein, 

The court ORDERS that plaintiff's motion for summary

judgment be, and is hereby, granted.

The court further ORDERS and DECLARES that plaintiff has no

obligation under the policy to make any payment on behalf of

defendant with respect to any of the claims that are being

asserted against defendant, or any judgment that might be

rendered against defendant, in the underlying lawsuit or to

provide a defense to defendant as to the claims against defendant

in the underlying lawsuit.

SIGNED June 14, 2005.

 /s/ John McBryde 

JOHN McBRYDE

United States District Judge

 

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