IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 08-20532

TRINITY UNIVERSAL INSURANCE COMPANY; UTICA NATIONAL

INSURANCE; NATIONAL AMERICAN INSURANCE COMPANY,

SUBROGEES OF LACY MASONRY INC.,

PlaintiffsSAppellantsSCross-Appellees

v.

EMPLOYERS MUTUAL CASUALTY COMPANY,

DefendantSAppelleeSCross-Appellant

Appeal from the United States District Court 

for the Southern District of Texas

Before JOLLY, DeMOSS, and PRADO, Circuit Judges.

PRADO, Circuit Judge:

This appeal presents an issue of first impression. In Mid-Continent

Insurance Co. v. Liberty Mutual Insurance Co., 236 S.W.3d 765 (Tex. 2007), the

Texas Supreme Court held that if relevant insurance policies to a dispute

contain pro rata or “other insurance” clauses, and a co-primary insurer pays

more than its pro rata portion of a settlement to indemnify an insured and

another co-primary insurer underpays, then the overpaying insurer cannot seek

reimbursement from the underpaying insurer under theories of contribution or

subrogation. In this appeal, we must decide whether the holding in MidUnited States Court of Appeals

Fifth Circuit

F I L E D

January 4, 2010

Charles R. Fulbruge III

Clerk
No. 08-20532

2

Continent extends to an insurer’s duty to defend its insured. If Mid-Continent

does not apply, then we must decide whether insurance companies that pay

defense costs may recoup a portion of those costs from a co-insurer that fails to

defend a common insured.

For the following reasons, we affirm the district court’s finding that

Defendant–Appellee–Cross-Appellant Employers Mutual Casualty Co. (“EMC”)

has a duty to defend its insured in the underlying suit. However, because the

district court erred in applying the rule of Mid-Continent to prohibit

Plaintiffs–Appellants–Cross-Appellees Trinity Universal Insurance Co., Utica

National Insurance, and National American Insurance Co. (collectively

“Appellants”) from recovering defense costs, we remand for a determination of

those costs. We do not reach the parties’ ancillary subrogation issue. 

I. FACTUAL AND PROCEDURAL BACKGROUND

A. Factual Background

Appellants and EMC each issued commercial general liability (“CGL”)

insurance policies to Lacy Masonry, Inc., covering Lacy Masonry while it was

engaged as the mason in the design, construction, and renovation of McKenna

Memorial Hospital (“McKenna”) in New Braunfels, Texas. Each policy obligated

the issuing insurer to indemnify Lacy Masonry for “sums that [Lacy Masonry]

becomes legally obligated to pay as damages because of ‘bodily injury’ or

‘property damage’” to which the policy applied. Each policy further obligated the

issuing insurer “to defend [Lacy Masonry] against any ‘suit’ seeking those

damages.” The four policies contained materially identical pro rata or “other

insurance” clauses under which “each insurer contributes equal amounts until

it has paid its applicable limit of insurance or none of the loss remains,

whichever comes first.” EMC’s policy contained a “Designated Work

endorsement/exclusion” (the “Designated Work exclusion”) limiting its coverage

by excluding any injuries arising out of Lacy Masonry’s construction,
No. 08-20532

3

installation, application, or other service of an “exterior insulation and finish

system” (“EIFS”), or any work Lacy Masonry performed on any exterior

component of a building if an EIFS was used on any part of that structure.

McKenna sued Lacy Masonry and several other companies, alleging each

was responsible for property damage caused during the design, construction, and

improvement of the hospital building. Lacy Masonry tendered the defense of the

suit to its insurers. Appellants, along with a fourth insurer that is not involved

in this case, agreed to defend Lacy Masonry and shared the defense costs. EMC,

however, denied that it had a duty to defend the suit under its policy and refused

to participate in or contribute to the defense. The participating insurers settled

with McKenna while this appeal progressed. 

B. Procedural Background

Appellants sued EMC in the district court, alleging claims for breach of

contract, contribution, and attorney’s fees, and seeking a declaration that EMC

owes a duty to defend Lacy Masonry in the McKenna suit. The parties crossmoved for summary judgment. The district court granted Appellants’ motion for

a declaratory judgment in part, finding that EMC had a duty to defend Lacy

Masonry in the underlying suit. The district court denied Appellants’ request

for a discretionary award of attorney’s fees, citing the Texas Declaratory

Judgment Act. See TEX. CIV. PRAC. & REM. § 37.009. Despite finding that EMC

had violated its duty to defend, the district court dismissed Appellants’ claims

on the merits, finding that, under Mid-Continent, Appellants could not recover

defense costs from EMC under either contribution or subrogation theories. Both

parties timely appealed. 

II. JURISDICTION AND STANDARD OF REVIEW

 We have jurisdiction over this appeal from a final order of the district

court under 28 U.S.C. § 1291. We review de novo a district court’s award of

summary judgment, applying the same standard as the district court. Ford
No. 08-20532

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Motor Co. v. Tex. Dep’t of Transp., 264 F.3d 493, 498 (5th Cir. 2008). Summary

judgment is proper when “the pleadings, the discovery and disclosure materials

on file, and any affidavits show that there is no genuine issue as to any material

fact and that the movant is entitled to judgment as a matter of law.” FED. R.

CIV. P. 56(c). “A genuine issue of material fact exists when the evidence is such

that a reasonable jury could return a verdict for the non-moving party.” Gates

v. Tex. Dep’t of Protective & Regulatory Servs., 537 F.3d 404, 417 (5th Cir. 2008)

(citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). “On

cross-motions for summary judgment, we review each party’s motion

independently, viewing the evidence and inferences in the light most favorable

to the nonmoving party.” Ford Motor Co., 264 F.3d at 498.

III. ANALYSIS

A. EMC’s Duty to Defend Lacy Masonry 

EMC asserts that we need not reach the application of Mid-Continent

because the district court erred by finding that EMC had a duty to defend Lacy

Masonry in McKenna’s suit. EMC contends that the Designated Work exclusion

exempts it from defending Lacy Masonry. This argument lacks merit. 

1. An Insurer’s Duty to Defend

Under a typical CGL policy an insurer assumes two distinct duties: the

duty to indemnify and the duty to defend. See Ohio Cas. Ins. Co. v. Time Warner

Entm’t Co., 244 S.W.3d 885, 890 (Tex. App.—Dallas 2008, writ denied). Whereas

the “duty to indemnify protects insureds ‘from payment of damages they may be

found legally obligated to pay,’” the duty to defend “‘protects the same parties

against the expense of any suit seeking damages’ covered by the policy.” Pine

Oak Builders, Inc. v. Great Am. Lloyds Ins. Co., 279 S.W.3d 650, 655 n.28 (Tex.

2009) (quoting Heyden Newport Chem. Corp. v. S. Gen. Ins. Co., 387 S.W.2d 22,

25 (Tex. 1965)).

The Texas Supreme Court recently summarized the duty to defend under
No. 08-20532

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Texas law. See Zurich Am. Ins. Co. v. Nokia, Inc., 268 S.W.3d 487, 490S91 (Tex.

2008). “An insurer must defend its insured if a plaintiff’s factual allegations

potentially support a covered claim, while the facts actually established in the

underlying suit determine whether the insurer must indemnify its insured.” Id.

(citing GuideOne Elite Ins. Co. v. Fielder Rd. Baptist Church, 197 S.W.3d 305,

310 (Tex. 2006)). Therefore, “an insurer may have a duty to defend but,

eventually, no obligation to indemnify.” Id. (citing Farmers Tex. County Mut.

Ins. Co. v. Griffin, 955 S.W.2d 81, 82 (Tex. 1997)). 

Texas follows the “eight-corners rule,” in which “‘an insurer’s duty to

defend is determined by the third-party plaintiff’s pleadings, considered in light

of the policy provisions, without regard to the truth or falsity of those

allegations.’” Id. at 491 (quoting GuideOne, 197 S.W.3d at 308). A court

“resolve[s] all doubts regarding the duty to defend in favor of the duty and . . .

construe[s] the pleadings liberally.” Id. (citations omitted). “‘Where the

complaint does not state facts sufficient to clearly bring the case within or

without the coverage, the general rule is that the insurer is obligated to defend

if there is, potentially, a case under the complaint within the coverage of the

policy.’” Id. (quoting Heyden Newport, 387 S.W.2d at 26 (citation omitted)). 

The court must resolve all doubts regarding coverage in favor of the

insured, but it cannot “look outside the pleadings, or imagine factual scenarios

which might trigger coverage.” Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v.

Merchs. Fast Motor Lines, Inc., 939 S.W.2d 139, 141–42 (Tex. 1997). Although

the burden is typically “on the insured to show that a claim against him is

potentially within the scope of coverage under the policies,” when “the insurer

relies on the policy’s exclusions, it bears the burden of proving that one or more

of those exclusions apply.” Federated Mut. Ins. Co. v. Grapevine Excavation,

Inc., 197 F.3d 720, 723 (5th Cir. 1999). When assessing the insurer’s proffered

exclusion, “‘[t]he court must adopt the construction of an exclusionary clause
No. 08-20532

6

urged by the insured as long as that construction is not unreasonable, even if the

construction urged by the insurer appears to be more reasonable or a more

accurate reflection of the parties’ intent.’” Utica Nat’l Ins. Co. of Tex. v. Am.

Indem. Co., 141 S.W.3d 198, 202 (Tex. 2004) (quoting Nat’l Union Fire Ins. Co.

of Pittsburgh, Pa. v. Hudson Energy Co., 811 S.W.2d 552, 555 (Tex. 1991)).

Thus, in determining whether EMC had a duty to defend Lacy Masonry,

we must compare the allegations in McKenna’s Fourth Amended Petition (the

“Petition”) to Lacy Masonry’s EMC insurance policy (the “EMC Policy”) and

determine whether the allegations in the Petition potentially fall within the

scope of the policy’s coverage. See Zurich Am. Ins. Co., 268 S.W.3d at 491;

Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1, 13 (Tex. 2007). 

2. The EMC Policy

The EMC Policy is a standard CGL policy that provides insurance

coverage for “property damage” caused by an “occurrence.” As the Texas

Supreme Court recently recognized when construing a similar policy, “claims for

damage caused by an insured’s defective performance or faulty workmanship

may constitute an ‘occurrence’ when ‘property damage’ results from the

unexpected, unforeseen or undesigned happening or consequence of the insured’s

negligent behavior.” Lamar Homes, Inc., 242 S.W.3d at 16 (quotations omitted).

Two portions of the EMC Policy are particularly relevant: (1) the body of the

policy itself (and the definitions of terms therein) and (2) the Designated Work

exclusion. 

The body of the EMC Policy defines covered “property damage” as

“[p]hysical injury to tangible property, including all resulting loss of use of that

property” or “[l]oss of use of tangible property that is not physically injured.”

However, the Designated Work exclusion exempts from coverage “‘property

damage’ included in the ‘products/completed operations hazard’ and arising out

of ‘your work’ shown” in a schedule included in the exclusion. 
No. 08-20532

 In the Designated Work exclusion, “if” is written as “in.” Reading this word as “in” 1

would limit the scope of the Designated Work exclusion. This reading is problematic, however,

as it renders the remainder of the sentence nonsensical. Most likely, this is a typographical

error. Regardless, EMC has a duty to defend Lacy Masonry even if this word is read as “in.”

7

The EMC Policy defines a “products/completed operations hazard” as “all

. . . ‘property damage’ occurring away from premises you own or rent and arising

out of ‘your product’ or ‘your work,’” subject to certain exceptions not relevant

here. The EMC Policy also defines “your work” as “(1) [w]ork or operations

performed by you or on your behalf; and (2) [m]aterials, parts or equipment

furnished in connection with such work or operations.” 

The Designated Work exclusion adds a schedule that specifies when“your

work” is “Designated Work” excluded from coverage. The exclusion exempts

“[a]ny work or operations with respect to any exterior component, fixture or

feature of any structure i[f] an [EIFS] is used on any part of that structure.”1

The schedule further defines an EIFS as “an exterior cladding or finish system

used on any part of any structure” consisting of certain materials.

As the district court succinctly summarized, the Designated Work

exclusion in the EMC Policy:

excludes coverage for injuries to or loss of use of tangible property

on premises not owned or rented by the insured, Lacy Masonry, if

those injuries arise out of either its construction, installation,

application, or other service of an EIFS, and also excludes coverage

for any work or operations performed by Lacy Masonry on any

exterior components or features of a structure if EIFS is used on

that structure or any part of the structure.

Trinity Universal Ins. Co. v. Employers Mut. Cas. Co., 586 F. Supp. 2d 718, 723

(S.D. Tex. 2008).

3. Comparison of the EMC Policy to the Petition

Appellants and EMC dispute the construction of the Petition. EMC

contends that the Petition only alleges damages arising from Lacy Masonry’s

construction of an EIFS or its work on the exterior components of a building that
No. 08-20532

8

has an EIFS, either of which would bring its work within the scope of the

Designated Work exclusion. Appellants argue that the Petition potentially

alleges property damages stemming from Lacy Masonry’s work on non-exterior

components of the building, which the EMC Policy would cover.

The district court found that the allegations in the Petition potentially fall

within the scope of the EMC Policy’s coverage. We agree. The Petition alleged

that Lacy Masonry, as the “mason for the Project[,] . . . was responsible for the

proper installation of all masonry work,” and listed a wide array of alleged

defects on various portions of the building, including “water infiltration caused

by improperly installed masonry.” (emphasis added.) This water infiltration

could have been caused by defects in interior masonry or from a source inside the

building. Indeed, the Petition specifically identifies “water infiltration at the

interior and exterior building envelope,” which would likely include portions of

the building other than its exterior. (emphasis added.) As previously noted,

“[w]here the complaint does not state facts sufficient to clearly bring the case

within or without the coverage . . . the insurer is obligated to defend if there is,

potentially, a case under the complaint within the coverage of the policy.”

Heyden Newport, 387 S.W.2d at 26 (quotation marks omitted). In this case, the

potential clearly exists. 

We must liberally construe the Petition and resolve all ambiguities in

favor of coverage. See Allstate Ins. Co. v. Hallman, 159 S.W.3d 640, 643 (Tex.

2005). Because the allegations do not clearly and unambiguously fall outside the

scope of the EMC Policy’s coverage, the district court properly found that EMC

has a duty to defend Lacy Masonry. We affirm the district court’s finding on this

issue.

B. The Rule of Mid-Continent as Applied to Defense Costs

Mid-Continent and Liberty Mutual were co-primary insurers of Kinsel

Industries. Mid-Continent, 236 S.W.3d at 768S69. Both Mid-Continent’s and
No. 08-20532

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Liberty Mutual’s insurance policies contained an “other insurance” clause, and

both insurers assumed responsibility for a pro rata share of Kinsel’s liability

stemming from a car accident. Id. at 769. Liberty Mutual entered into

settlement negotiations and agreed to settle for $1.5 million. Id. Mid-Continent

contributed only $150,000 to the settlement, leaving Liberty Mutual to pay the

balance. Id.

Liberty Mutual sued Mid-Continent in Texas state court to recover the

amount it had contributed to the settlement over its pro rata share. MidContinent removed the case to federal district court. The district court found for

Liberty Mutual, ruling that the subrogation clause in Liberty Mutual’s policy

allowed it to recover from Mid-Continent on Kinsel’s behalf. Id. Mid-Continent

appealed, and we certified the question to the Texas Supreme Court. Liberty

Mut. Ins. Co. v. Mid-Continent Ins. Co., 405 F.3d 296, 297 (5th Cir. 2005).

The Texas Supreme Court rejected Liberty Mutual’s claims for

contribution and found that it did not have a right of subrogation because Kinsel

was fully indemnified. Mid-Continent, 236 S.W.3d at 768, 772. The Texas

Supreme Court cited its earlier decision in Traders & General Insurance Co. v.

Hicks Rubber Co., 169 S.W.2d 142 (Tex. 1943), where it held that an “other

insurance” clause precludes a claim for contribution asserted by one co-insurer

against another. Mid-Continent, 236 S.W.3d at 772. The court also noted that

“this direct claim for contribution between co-insurers disappears when the

insurance policies contain ‘other insurance’ or ‘pro rata’ clauses.” Id. (citation

omitted). The court reasoned:

The effect of the pro rata clause precludes a direct claim for

contribution among insurers because the clause makes the contracts

several and independent of each other. With independent

contractual obligations, the co-insurers do not meet the common

obligation requirement of a contribution claim—each co-insurer

contractually agreed with the insured to pay only its pro rata share

of a covered loss; the co-insurers did not contractually agree to pay
No. 08-20532

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each other’s pro rata share. 

Id. (citations omitted). Thus, the court held that “a co-insurer paying more than

its proportionate share cannot recover the excess from the other co-insurers.”

Id. (citing Hicks Rubber Co., 169 S.W.2d at 148).

Given the Texas Supreme Court’s decision, we reversed the district court’s

judgment and remanded with instructions to enter a take-nothing judgment

against Liberty Mutual. Liberty Mut. Ins. Co. v. Mid-Continent Ins. Co., 508

F.3d 261, 262–63 (5th Cir. 2007) (per curiam).

1. Application of Mid-Continent to Appellants’ Contribution

Claim for Defense Costs

Despite finding that EMC had breached its duty to defend Lacy Masonry,

the district court found that, under the Texas Supreme Court’s decision in MidContinent, Appellants could not recover defense costs from EMC under either a

contribution or subrogation theory. Although the district court correctly

explained much of the Mid-Continent decision, it mischaracterized the holding

with respect to its denial of Liberty Mutual’s contribution claim. Mid-Continent

only addressed the question of whether one co-insurer has a right of contribution

or subrogation against a non-paying co-insurer to recover money paid to

indemnify a common insured for a loss. Mid-Continent left open the separate

question of whether a co-insurer that pays more than its share of defense costs

may recover such costs from a co-insurer who violates its duty to defend a

common insured. 

Texas courts have repeatedly affirmed that an insurer’s duty to defend is

separate from and broader than its duty to indemnify. See, e.g., Zurich Am. Ins.

Co., 268 S.W.3d at 490. The language of the EMC Policy confirms this duty. By

its express terms, the “other insurance” provision speaks only to an insured’s

“loss.” It provides that, if there are co-primary insurance policies, EMC will

share the cost of paying for any loss that Lacy Masonry suffers. It does not
No. 08-20532

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indicate a similar proration of costs incurred in fulfilling its separate and

distinct duty to defend Lacy Masonry. The “other insurance” clause applies only

to the duty to indemnify, not the duty to defend. 

The fact that the “other insurance” clause applies only to EMC’s duty to

indemnify is dispositive of this issue. To prevail on a claim for contribution, a

party must show that “(1) the several insurers share a common obligation or

burden and that (2) the insurer seeking contribution has made a compulsory

payment or other discharge of more than its fair share of the common obligation

or burden.” Mid-Continent, 236 S.W.3d at 772 (numbering added). In MidContinent, the Texas Supreme Court held that “[t]he effect of the pro rata [‘other

insurance’] clause precludes a direct claim for contribution among insurers

because the clause makes the contracts several and independent of each other.”

Id. at 772. Because the duty to indemnify is “several and independent,” Liberty

Mutual could “not meet the common obligation requirement of a contribution

claim. Each co-insurer contractually agreed with the insured to pay only its pro

rata share of a covered loss; the co-insurers did not contractually agree to pay

each other’s pro rata share.” Id.

The same is not true as to EMC and its duty to defend Lacy Masonry. The

EMC Policy provides that EMC “will have the right and duty to defend the

insured against any ‘suit’ seeking” damages covered by the EMC Policy. An

“other insurance” clause does not modify this obligation so as to render it several

and independent. Although EMC may owe only one-fifth of the cost to indemnify

Lacy Masonry, it—along with Appellants—had a complete duty to defend Lacy

Masonry. The duty to defend creates “a debt which is equally and concurrently

due by” all of its insurers. Id. (internal quotation marks omitted). Indeed, this

conclusion is supported by the uniform holdings of Texas courts that if even a

single claim in a lawsuit potentially falls within an insurance policy’s coverage,

the insurer has a duty to provide a complete defense. See, e.g., Tex. Prop. & Cas.
No. 08-20532

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Ins. Guar. Ass’n/Sw. Aggregates, Inc. v. Sw. Aggregates, Inc., 982 S.W.2d 600,

606 (Tex. App.—Austin 1998, no pet.); see also Indian Harbor Ins. Co. v. Valley

Forge Ins. Group, 535 F.3d 359, 363 (5th Cir. 2008) (noting the “complete

defense” obligation of an insurer under Texas law). As one Texas court stated,

“[t]his is because the contract obligates the insurer to defend its insured, not to

provide a pro rata defense.” Sw. Aggregates, 982 S.W.2d at 606. Contrary to the

district court’s conclusion, Appellants satisfied the “common obligation”

requirement for a contribution claim.

Because EMC admits that it did not participate in or contribute to Lacy

Masonry’s defense, Appellants satisfy the second requirement for a contribution

claim, “that the insurer seeking contribution has made a compulsory payment

or other discharge of more than its fair share of the common obligation or

burden.” Mid-Continent, 236 S.W.3d at 772. Accordingly, the district court

erred in finding that Appellants could not recover from EMC a one-fifth portion

of the cost of defending Lacy Masonry in the McKenna suit. Therefore we

reverse the district court’s finding on this issue and remand for the

determination of defense costs to which Appellants are entitled and with

instructions to enter judgment for Appellants in that amount.

2. Subrogation

The parties briefly address Appellants’ right of subrogation against EMC.

Our holding that Appellants succeed on their contribution claim precludes

discussion of subrogation and we need not reach that issue. 

IV. CONCLUSION

We AFFIRM that portion of the district court’s judgment in which the

district court found that EMC has a duty to defend Lacy Masonry. However,

because the district court incorrectly applied Mid-Continent, we REVERSE that

portion of the district court’s judgment and hold that Appellants are entitled to

collect a proportionate share of defense costs from EMC. We REMAND for the
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determination of the defense costs. 

AFFIRMED IN PART, REVERSED IN PART, and REMANDED.