Opinion ID: 4380332
Heading Depth: 2
Heading Rank: 1

Heading: State Farm Had a Duty to Defend.

Text: An insurer has a duty to defend whenever the policy potentially covers at least one claim in the underlying litigation. See GuideOne Elite Ins. Co. v. Fielder Rd. Baptist Church, 197 S.W.3d 305, 310 (Tex. 2006) (“A plaintiff’s factual allegations that potentially support a covered claim [are] all that is needed to invoke the insurer’s duty to defend.”). We analyze the duty to defend under the “eight corners” rule: “courts look to the facts alleged within the four corners of the pleadings, measure them against the language within the four corners of the insurance policy, and determine if the facts alleged present a matter that could potentially be covered by the insurance policy.” Ewing Const. Co., Inc. v. Amerisure Ins. Co., 420 S.W.3d 30, 33 (Tex. 2014). We “focus on the factual allegations that show the origin of the damages rather than on the legal theories alleged.” Nat’l Union Fire Ins. Co. v. Merchs. Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex. 1997). Any doubt about whether “allegations . . . state a cause of action within the coverage” is “resolved in the insured’s favor.” Id. 7 Case: 18-50108 Document: 00514884981 Page: 8 Date Filed: 03/22/2019 No. 18-50108 The D&O Provision covers “those sums that the insured becomes legally obligated to pay as damages because of ‘wrongful acts’” the insured commits. It defines “wrongful acts” as “any negligent acts, errors, omissions, or breach of duty directly related to the operations of your church.” The D&O Provision does not define “operations.” Relying on Webster’s Third New International Dictionary, the district court interpreted the term to mean “the whole process of planning for and operating a business or other organized unit.” The district court concluded that State Farm did not have a duty to defend Brown because his alleged actions in leading the recall campaign were not “directly related to the operations of” WOL Church. 5 We disagree. Cook alleged that Brown was liable for violating Election Code provisions that govern corporations, not individuals, based on his status as a director of WOL Church. Cook essentially claimed that Brown caused the Church to violate the Election Code. He thus alleged that Brown’s activities were directly related to the Church’s operations. Looking only to Cook’s operative petition and the D&O Provision, see Ewing, 420 S.W.3d at 33, we conclude that Cook’s allegations triggered State Farm’s duty to defend. The district court held that Brown’s actions were not directly related to Church “operations” under the D&O Provision. Pastor Brown swore his actions in this case “were in furtherance of a ministry of the Church.” Word of Life Church of El Paso v. State Farm Lloyds, No. 17-cv-00049, 2018 WL 297617, at  (W.D. Tex. Jan. 4, 2018). But the district court concluded that because 5 At oral argument, State Farm also argued that the incidents in question were not committed “solely in the conduct of [Brown’s] management responsibilities for the church” as required by the Policy. In his brief, Brown argued that he acted in a management capacity, and State Farm cited nothing to the contrary. Indeed, State Farm did not raise any separate argument about “management” in its summary judgment motion below or in its brief to this court, and the district court did not mention it, so we decline to address it. See City of Alexandria v. Brown, 740 F.3d 339, 350 (5th Cir. 2014) (“Summary judgment may be affirmed on any basis raised below and supported by the record.” (emphasis added)). 8 Case: 18-50108 Document: 00514884981 Page: 9 Date Filed: 03/22/2019 No. 18-50108 Brown acted “to help restore the rights of the voters” and because political activities like the recall campaign were not “typical of the operations of a religious organization.” But the D&O Provision gives no indication that Church “operations” do not encompass voting rights work or other activities outside the realm of traditional church ministries. This case turns on whether the church’s conduct was covered by its insurance policy. And that policy covered actions related to “the operations of your church,” not a typical church. The District Court’s perception of what is “typical” is not binding on the Word of Life (“your”) church in fulfilling its own mission. We thus decline to adopt the district court’s interpretation of the term.
However, State Farm also argues that the D&O Provision’s criminal acts exclusion bars coverage, thus negating its duty to defend. The district court did not reach this issue. We now conclude as a matter of law that the exclusion did not bar State Farm’s duty to defend. Under the eight corners rule, State Farm had a duty to defend “if the facts alleged present[ed] a matter that could potentially be covered by the insurance policy.” Ewing, 420 S.W.3d at 33 (emphasis added). Here, Cook alleged facts supporting potential noncriminal violations of the Election Code. State Farm thus had a duty to defend. Among other things, Cook alleged that EPTFV was “not a valid political committee under Texas or other law to support or promote any recall election effort in 2011.” He asserted that Brown and WOL Church thus “illegally operated a political committee . . . in violation of the Texas Election Code.” 6 6 Cook also asserted that WOL Church was liable under Texas Election Code § 253.094 and “any other applicable provisions of the Texas Election Code.” Cook sought damages, which are available based only on a “knowing” violation of the Texas Election Code. But he also pursued injunctive and declaratory relief, which are available to remedy Election Code violations even without a culpable mental state. See TEX. ELEC. CODE ANN. § 273.081 (“A 9 Case: 18-50108 Document: 00514884981 Page: 10 Date Filed: 03/22/2019 No. 18-50108 Such allegations presented a potential violation of Texas Election Code § 253.096, which states that “[a] corporation . . . may make campaign contributions from its own property in connection with an election on a measure only to a political committee for supporting or opposing measures exclusively.” TEX. ELEC. CODE ANN. § 253.096. Section 253.096 does not specify that a violation of that provision is a criminal offense. Cook thus alleged possible noncriminal conduct that the Policy at least potentially covered, so State Farm had a duty to defend. See GuideOne, 197 S.W.3d at 310. B. Genuine Fact Issues Exist As to Whether State Farm Had a Duty to Indemnify. 1. “Operations of Your Church” The duty to indemnify and the duty to defend “enjoy a degree of independence from each other.” D.R. Horton-Tex., Ltd. v. Markel Int’l Ins. Co., 300 S.W.3d 740, 743–44 (Tex. 2009). Thus, prevailing on one does not guarantee prevailing on the other. Id. Unlike the duty to defend, the duty to indemnify turns on the “facts actually established” in the underlying litigation. GuideOne, 197 S.W.3d at 310. Courts thus consider evidence in determining whether a duty to indemnify exists. See Burlington N. & Santa Fe Ry. Co. v. Nat’l Union Fire Ins. Co. of Pittsburgh, 334 S.W.3d 217, 219 (Tex. 2011); D.R. Horton-Tex., 300 S.W.3d at 744. In this context, “the insured carries the burden to establish the insurer’s duty to indemnify by presenting facts sufficient to demonstrate coverage.” Nat’l Union Fire Ins. Co. of Pittsburgh v. Puget Plastics Corp., 532 F.3d 398, 401 (5th Cir. 2008). person who is being harmed . . . by a violation . . . of this code is entitled to appropriate injunctive relief to prevent the violation from continuing . . . .”); see also id. § 253.096 (regulating corporate political contributions without specifying a required mental state or creating a criminal offense for a violation of the statute). 10 Case: 18-50108 Document: 00514884981 Page: 11 Date Filed: 03/22/2019 No. 18-50108 Here, the district court concluded that State Farm had no duty to indemnify Brown. It noted that “Brown’s only evidence . . . that the recall election was a ministry of the Church are his own self-serving statements” in an affidavit he filed. It further noted that Brown’s disclaimer on the Church website and the fact that the recall petition at WOL Church was available off church property “undermined” Brown’s argument. The district court determined that Brown “offered no competent summary judgment [evidence] that corroborates his self-serving testimony.” It concluded that no reasonable jury could find that Brown’s actions in the recall campaign were “directly related to the operations” of the Church. We disagree. “A party’s own testimony is often ‘self-serving,’ but we do not exclude it as incompetent for that reason alone. Instead, an affidavit based on personal knowledge and containing factual assertions suffices to create a fact issue, even if the affidavit is arguably self-serving.” C.R. Pittman Const. Co. v. Nat’l Fire Ins. Co. of Hartford, 453 F. App’x 439, 443 (5th Cir. 2011). 7 Here, Brown’s affidavit set forth material facts 8 regarding whether his actions were directly related to the Church’s operations. As discussed above, “typicality” is not the question, what “your church’s” operations are constitutes the question. Cf. Hosanna-Tabor Evangelical Lutheran Church & Sch. v. EEOC, 565 U.S. 171, 197 (2012) (Thomas, J., concurring) (Addressing employment liability and stating: “[I]t is a significant burden on a religious organization to require it, on pain of substantial liability, to predict which of 7“An unpublished opinion issued after January 1, 1996 is not controlling precedent, but may be persuasive authority.” Ballard v. Burton, 444 F.3d 391, 401 & n.7 (5th Cir. 2006). 8 For example, Brown stated: “Through my leadership, as a church, we became involved in the recall effort as a ministry because we believed that these public officials were creating government policy that we believed harmed the church . . . .” He further asserted that “[b]y advertising the recall effort on the church’s website, I was not only communicating this effort as a ministry of our church, through my leadership, as a church we were also seeking additional supporters for our church.” 11 Case: 18-50108 Document: 00514884981 Page: 12 Date Filed: 03/22/2019 No. 18-50108 its activities a secular court will consider religious. The line is hardly a bright one, and an organization might understandably be concerned that a judge would not understand its religious tenets and sense of mission.”) (quoting Corp. of Presiding Bishop of Church of Jesus Christ of Latter-Day Saints v. Amos, 483 U.S. 327, 336 (1987). That Brown’s affidavit contradicted his previous disclaimer on the Church website is similarly unavailing. Brown’s previous unsworn disclaimer does not nullify his sworn affidavit. Additionally, the rulings against the Church in the Cook litigation were based upon Brown’s conduct, suggesting that they were, indeed, “related to the operations of” the Church. As a result, a genuine issue of material fact exists regarding whether Brown’s actions were “directly related to the operations of” WOL Church and thus subject to indemnity by State Farm. 2. Criminal Acts Exclusion State Farm also argues that the criminal acts exclusion bars its duty to indemnify. Unlike the general coverage question, State Farm has the burden of proof of an exclusion. Lincoln Gen. Ins. Co. v. Reyna, 401 F.3d 347, 350 (5th Cir. 2005). Thus, it cannot rely on any failures of proof by Brown to prevail on a summary judgment: it must prove that there are no genuine issues of material fact and that it is entitled to prevail as a matter of law. See id.; see also FED. R. CIV. P. 56(a). The state court of appeals found that WOL Church violated Texas Election Code §§ 253.094(b) and 253.096. Cook, 385 S.W.3d at 603. It also concluded that “violations of Section 253.031(b) . . . have occurred.” Id. at 606. 9 9 Section 253.031(b) prohibits a political committee from “knowingly accept[ing] political contributions totaling more than $500 or mak[ing] or authoriz[ing] political expenditures totaling more than $500 at a time when a campaign treasurer appointment for the committee is not in effect.” TEX. ELEC. CODE ANN. § 253.031(b). The provision does not clarify whether “knowingly” refers to simple knowledge of the act itself or knowledge that the act violates the Election Code. See id. 12 Case: 18-50108 Document: 00514884981 Page: 13 Date Filed: 03/22/2019 No. 18-50108 However, the district court concluded that a genuine issue of fact existed as to whether Brown’s violations were unintentional. Criminality of these election offenses is based on “knowingly” committing the acts. See, e.g., TEX. ELEC. CODE ANN. §§ 253.003, 253.031. The district court did not address this issue, but we conclude that State Farm did not prove as a matter of law that the acts in question were “criminal acts.” We thus remand to the district court for consideration of this issue in the first instance.