### IN THE COURT OF APPEALS OF TENNESSEE AT JACKSON Submi tted On Br

ief Nove mber

6, 2003
AMERICAN INDEMNITY COMPANY v. IRON CITY LUMBER &

PALLET, INC., ET AL 

### . Direct Appeal from the Chancery Court for Lawrence County No. 10405-01 Robert L. Holloway, Jr., Judge

No. M2002-00650-COA-R3-CV - Filed Mar ch 4, 2003

This case involves an insurance company’s a ppeal of the trial court’s decision that the company has
a duty to defend

its insured u nder a commercial gener al liability policy . Applying Te xas law, we find that no such duty

exists and, accord

ingly , rever se the de cision of the trial court. Tenn. R. App.P. 3 Appe al as of Right ; Judgme nt of the Cha

ncery Court Reve rsed; and Remanded

D AV ID R. F ARMER , J., deliver ed the opinion of the

court, in which A LAN E. H IGHERS and H OLLY K. L ILLARD , J.J., joined.
Parks T. Chasta

in and G ordon C. Aulgur, Nashville, Tennessee, for the a ppellant, American Ind em ni ty C om pa ny. Randy Hillhouse, L

awrenceburg, Tenne ssee, for the appellee, I ron City L

umber & Pallet, Inc. W. Charles Doerflinger, L awrenceburg, Tenne ssee, for the appellee, All Weigh Scale, I nc.
OPINION This is a coverage dispute involving a commer cial general liability

policy (the “Policy

”) provided by A ppellant , Americ an I

ndemnity Company

(“Amer ican”) , to one of

the Appellees, Mark Beard d/b/a Precision Weighing Sy stems (“Beard”). The Appellee s contend that, pursuant to the Policy, American wa s under a contractual duty to defend Beard in a lawsuit brought agains t Beard , et al., b y I

ron City Lumbe r & Palle t , Inc . (“I ron City ”). Amer ican, by contras t, denies that the claims asserted by Iron City fell within the scope of coverage of the Policy and asserts that it was not obligated to afford Bea rd a defense against I

ron City’s action. The underlying

lawsuit arose out of a contract between I ron City and All Weigh Scale, Inc . (“All We

igh”), for the in stallatio n of truck scalesto weigh trucks l oaded with logs. A ll1 Individually and d /b/a Precision W eighing Systems.

2 Individually and d /b/a Precision W eighing Systems.
-2- Weigh in t

urn hire d Bear

d to install

the scal es. Bea

rd’s initi al install ation re sulted in p roblems with the sc ales nec essitatin g a wor k stoppag e of six (6) day s in order to attempt

repair s. This initial repair attempt was apparently unsuccessful and another work stoppage , this one approximating fifty (50) da ys, was requir

ed to ultimately correct the problem. Iron City subsequently filed suit ag ainst All Weigh and Beard, seeking r ecovery “for an amount to cover the lost income of plaintiff for being shut down while the sca les were out of operation, for the lost business caused by the faulty sca

les, and for the expense of hauling off debris before the scales were f ixed, for a total not to exceed SEVENTY FIVE TH OUSAND ($75,000) DOLL

ARS. . . .” Beard, upon receipt of the complaint, reque sted that American defend a nd/or inde

mnify him in connection wi

th the suit. America

n notified Beard that it would defend the allegations of the complaint under re servation of rights. Beard dec lined this offer and American again offer

ed to defend under reservation of rig hts. American subsequently filed a Complaint for Declaratory Judgment asking the court to declare whether American owed Beard a duty to defend and inde

mnify under the terms of t

he policy . The com

plaint na med I ron City , All Weigh, Beard in his individual capacity , and Beard d/b/a Precision Weighing Sy stems as Defendants. American moved for def ault judgment against All Weigh and Bea rd 1 for fail

ure to timely file an answe

r. The motion was granted as to Bea rd. 2 American then moved for summary judgmen t as to the r

emaining defenda nts, I ron City and All Wei gh base d on a lac k of duty to defend Beard. The court de nied this motion. American then filed a motion seeking permission for an interlocutory

appeal with the trial court. The trial court denied this motion. American then filed an application for extraordinary appeal with this court, which was also denied. American then filed a motion for final judgment to be enter ed on its complaint for declaratory judgment. The trial court granted this motion, making the de termination that American owed a duty to defend Bear

d a final order pu rsuant to Tenn. R. Ci v. P. 54.02. America n subsequ ently perfected this appeal pursuant to Tenn. R. App. P. 3. Standard of Review “Insurance policie s are contracts subject to interpretation under g eneral contract principles[,]” Provident Am. Ins. Co. v. Castaneda , 988 S.W.2d 189, 203 (Tex. 1998), and “[t]he interpretation of contractual languag e is a question of law . . . not a fact issue.” Faust v. Pumpco, Inc. , 57 S.W.3d 620, 624 (Tex. App. 2001). Accordingly , we conduct our review de
novo , as questi ons of law are reviewed a s such, with no pres umption of correctness. Nelson v. Wal-Mart Stores, Inc. , 8 S.W.3d 625, 628 (Tenn. 1999).-3- The “Eight Corners” Rule As stated in the trial court’s order deny ing summary judg

ment, the parties agree that Texas substantive law applies under the facts of this case, as the policy was issued and delivered in Texas. See Standard Fire Ins. Co. v. Chester-O’Donley and Assoc.’s, Inc. , 972 S.W.2d 1, 5 (Tenn. Ct. App. 1998). In order
[t]o determine an insurer's duty to defend, Texas co urts follo w the “e ight cor ners” rule. See National Union Fire Ins. Co. v. Merchants Fast Motor Lines, Inc. , 939 S.W.2d 139, 141 ( Tex.1997) ; Texas Pro p. & Cas. Ins. Guar. Ass'n v . Southwest Agg regates, Inc. , 982 S.W.2d 600, 604 (Tex.App.-Austin 1998, no pet.) (citing American Alliance Ins. Co. v. Frito-Lay, Inc. , 788 S.W.2d 152 , 153 -54 (Tex.App.-D allas 1990, writ dism’d)). Pursuant to the rule, we consider only the allega tions i n the unde

rlying comp laint and

the termsof the ins urance policy to determi ne whether

a duty to defend e

xists, giving the allegations in the petition a liberal in te rp re ta ti on an d r es ol vi ng an y doubt in f avor of the insured. McCarthy Bros. Co. v. Continental Lloyds Ins. Co. , 7 S.W.3d 725, 728 (Tex.App .-Austin 1999, no pet .) (ci ting Merchants Fast Motor Lines , 939 S.W.2d at 141). “T he duty to defend is not affected by the facts of the case ascerta ined before, during, or after the suit.” Cullen/Frost B ank of Dall

as, N.A. v. Commonwealth Lloyd's In s. Co. , 852 S.W.2d 252, 255 (Tex.App.-Dallas 1993, writ denied). Nor do we consider the reliabil ity of the allegations in the underly ing pleadings. Id. If the underly ing petition does not alleg e facts within the scope of coverage, the insurer ha s no duty to defend. Id. Once coverage has been f ound for any por

tion of a suit, an insurer must defend the entire suit. St. Paul Ins. Co . v. Texa s Dep't of

Transp. , 999 S.W.2d 881, 884 (Tex.App.- Austin 1999, pet. denied). Therefore, to determine whether [American] has a duty to defend

[ Beard], we consider only the allegations in the underly ing petitions a

nd the pro visions of

the insur ance po licies. CU Lloyd’s of Texas and Potomac Ins. Co. of Illinois v. Main Street Homes, In c. , 79 S.W.3d 687, 692 (Tex. App. 2002). The Policy The polic y a

t issue inc luded “Pr

oducts-c ompleted

operati ons hazar

d” cove rage. This coverage “includes all ‘bodily injury’ and ‘pr

operty damag e’ occurring away from premises you
own or re nt and ar ising out of ‘your produ ct’ or ‘y

our work ’ except: ( 1) Produc ts that ar e still in your phy sical possession; or (2) Work that has not yet been completed or abandoned.” The policy goe s on to state that “‘[y]our work’ will be dee med completed at the earliest of the following times: . . . (3) When that part of the work done at a job site has been put to its intended use by any

person or organization other than another contra ctor or subcontractor working on the3 As this pro vision a pplie s to the fac ts prese nted, w e find it unnecessary to l ist t he other two circums tances under whic h th e work

wil l be de emed compl eted.

4 Such coverage app lies only a fter the insu red h as co mple ted his w ork. See Maryl and Cas. Co. v. Knor

pp , 370 S.W.2d 898, 904 ( Tex. Ci v. App. 1963). If the Policy had not contained this coverage, then American’s duty to defend
wou ld have ceas ed at the co mple tion of the work , for “the o bligatio n to de fend . . .depend[s] upon the policy provisions purchased, and the al legat ions of [the u nderly ing complai nt] .

. . .” Id.

-4- same project.” 3 Of particular relevance to the issue a t hand is the immediately following statement that “[w]ork that may need ser vice, maintenance, correction, repa ir or replacement, but which is otherwise complete, will be treated as completed.” As the underlying

complaint alleges that the d amage s sustaine d were d ue to the necessity

to repai r the sca les, it is c lear tha

t if coverage exists, it stems from the “Products-completed operations hazard” coverage. 4
Trial Court’s Order Appare ntly recog nizing thisfact, the trial c ourt, in itsorder de nying summa

ry judgmen t, stated tha t “[v]iewing

the termsof the co ntract in the ligh t most favo

rable to the Respo ndents, there appears to be a ge

nuine issue of material fact as to whether or not the ‘Products-Completed Oper ation s’ se ction

of the polic y p rovid es co vera ge f or the dama ges susta ined by Ir on Cit y. ” We disagree.
The unde rlying comp laint see

ks a Judgment against defendants, jointly and severally , for an amount to cover the lost income of plaintiff for being shut down while the scales wer e out of operation, for the lost busines s caused by the

faulty scale s, and for the expense of hauling off d

ebris before the scales were fixed . . . . (emphasis added). As noted, the “Products-Completed Operations” policy provision provides coverage for “proper ty d amage ,” which

is define d within the

policy as follow s: ‘Proper ty d amage ’ means:
a. Phys ical injur

y to tangibl e proper

ty, including

all resulting loss of use

of that pr operty . All such l oss of use shall be deemed to occur at the time of the physical injury

that caused it; or
b. Loss of use of tangible pr operty that is not physically

injured. All such loss of use shall be deemed to occur at the time of the ‘occurr ence’ that caused it.-5- Allegations Contained in the Com plaint as they Relate to the Policy The underlying

complaint clearly f

ails to meet the first definition of “Property Damage.” Th e c om pl ai nt , o n i ts fa ce , d oe s n ot cl ai m “ ph ysi ca l i nj ur y to ta ng ib le pr op er ty. ” T o t he co nt ra ry, the dama ges cla imed, and the relie f sough t in the und

erly ing comp laint rep

resent o nly

economic damage s; damag es which Texas cou

rts have held not to

fall within the def

inition of “

propert y damage”as that term is used in standard liability insurance policies. See State Farm Lloyds v. Kessler , 932 S.W.2d 732, 737 (Tex. App. 1996). Simply put, “[i]n Texas, economic damages are not property dama

ges as defined by

liability insurance policies.” Id. at 737. Accordingly , “as the [underlying] claim involves only economic loss and not property damage, it does not subject [Appellant] to any obligation to provide a def ense to its insured.” Gibson & Assoc.’s, Inc. v. Home Ins. Co. , 966 F. Supp. 468 (N.D. Tex. 1997) (apply ing Texas law). Nor can the insured rely

upon the second definition of “Property Damage” provided in the policy , for “the plain me aning o f the insu rance c ontract

phrase, ‘the loss o f use of t angible property,’ doe s not include economic loss, i.e., the loss of . . . profits.” Houston Petroleum Co. v. Highlands Ins. Co. , 830 S.W.2d 153, 156 (Tex. App. 1990). Additionally, this definition clearly r equires an “occurrence ” as a prerequisite to a finding of “pr operty damag e.” The policy providesthat “‘[o]c currence’ mea ns an accident, inc luding c ontinuous o r repea ted exposur

e to substantially the same g eneral harmful conditions.” Assuming, arg uendo, that the resulting damages claimed by

Iron City are the result of an “occurre nce,” as that term is defined in the policy, thus resulting in “pr operty damag e” under the “loss of use of tangible prope rty that is not phy sically

injured”definitio n, cover age wo uld still be

lacking , howeve

r, as the only loss of use claimed is the loss of use of the scale itself.
The unde rlying comp laint alle ges tha t “[t]he def

endant, MARK BEAR

D, imprope

rly installed the scales so that they ultimately failed and could not be used causing plaintiff to shut down in [sic] his sawmill operation for repairs for six (6) days.” T he complaint further alleges that the defendant attempted to repair the scales, but that “the scales were still not installed properly or de signed properly and they ag ain failed causing plaintiff’s operation to cea se.” Plaintiff claimed that as a result of this second failure that the “sawmill was closed down for approximately (50) day s.” The policy a t issue provides two exclusions which make it clear that “property damage” to the scales themselves, including damages stemming from loss of use of the scales, is not covered. The first pertinent exclusion provides that “‘[p]roperty da mage’ to ‘your product’ arising out of it or any part of

it[,]” is not covered under the policy. The policy defines “y our product” as “[a]ny goods or products, other than real property , manufactured, sold, handled, distributed or disposed of by . . . [y]ou . . . .” In this case Mr. Bea rd would have “handled” the scales in the process of installing, as well as attempting to repair the m, therefore, they

would fall within the definition of “your pr

oduct” and any

“property

damage” to the scale would not be cove red by the po li cy.5 The “‘Pro duc ts-com pleted ope rations haza rd’ inclu des a ll . . . ‘prope rty dam age’ occurring away from the

premises you own or re nt a nd arising out of ‘your pro duc t’ or ‘your work ’. . . .” W hen re ad in c onc ert with the “your pro duc t” and “your wo rk” exclusions, it is cl ear th at this coverage does not extend to damage to “your product” or “your work,” but

only t o other “ property damage.”
-6- The second exclusion provides that “‘[p]roperty da mage’ to ‘your work’ arising out of it
or an y p art o f it a

nd inc lude d in the ‘pr

oduc ts com

pleted ope

rati ons ha zard’ .[sic ]” 5 The policy defines “y our work” as “[w]ork or operations performed by you or on y

our behalf; and . . . [m]aterials, parts or equipment furnished in connection with such work or operations.” The scales which Mr. Beard installed were “equipment furnished in connection with” “work or operations performed by

[him]” and thus meet the foregoing definition of “y our work.” Accord ingly , as “pro

perty damage ” to “y

our work ” is exclud

ed by the polic y, a

ny “ propert y da ma ge ” t o t he sc al e, in cl ud in g l os s o f u se , i s n ot co ve re d b y th e p ol ic y.
Plaintiff ’s under lying compla

int seeks recove

ry for lost r evenue , which is t

he direct result of the loss of use of the scale. Loss of u se of t he scal e is, h owever , merel y an elemen t of da mage to the scale itself. See Employers Cas. Co. v. Brown-McKee, Inc. , 430 S.W.2d 21, 27 (Tex. Civ. App. 1968 ) (finding that, w here pla intiff wa s unable t

o use a g rain stor age elevator

due to fa ulty workmanship and sued for revenue lost due to the inability to store grain in the elevator, that the damages claimed were “ not . . . for damages to the grain - - it is for lost storage revenue, which, in effect, is for the loss of use of the elevator. . . . [L ]oss of use of the elevator is merely an element of damage to the elevator . . . .” ). As noted, damage to the scale itself is excluded from
covera ge unde r both the “y our work

” and “y our produ ct” exce

ptions to c overag e for “p

roperty damage.” According ly, the complaint fails to show that a duty to defend exists. Estoppel Appellee s contend

that Amer

ican shou ld be esto pped fro m deny

ing cov erage

because All Weigh required proof of insurance f rom Beard prior to entering into the contra ct for installation of the scale. This argument is without merit, for “[t]he doctrines of waiver or estoppel cannot enlarge or extend coverag e as defined in an insurance contract; such an application exceeds the function of those doctrines.” Brownsville Fabrics, Inc. v. Gulf Ins. Co. , 550 S.W.2d 332, 340 (Tex. Civ. App. 1977). As we have already found that coverage is not provided for within the policy, estoppel may

not be used to create such.

Conclusion For the reasons set forth in this opinion, we find that the Appellant has no duty to defend under the subject p olicy . Accor

dingly , the judgment of the trial cou rt is reve rsed. Cos ts of this appeal are taxed to Appellees for which execution, if nece ssary, may issue.

___________________________________ DAVID R. FARMER, JUDGE