Opinion ID: 17516
Heading Depth: 3
Heading Rank: 2

Heading: Facts triggering the duty to indemnify

Text: 17 Assuming Northern breached its duty to defend, it may still challenge indemnification. If an insurer breaches the duty to defend, it may not contest a determination that its insured was liable in the underlying settlement or verdict (or the amount of either). It remains free, however, to argue that the assumed liability was not in actuality covered under its policy, and thus no duty to indemnify arises. See Employers Casualty Company v. Block, 744 S.W.2d 940, 943 (Tex.1988), overruled on other grounds by State Farm Fire and Casualty Co. v. Gandy, 925 S.W.2d 696, 714 (Tex.1996); Hartford Casualty Co. v. Cruse, 938 F.2d 601, 605 (5th Cir.1991); Enserch Corp., 952 F.2d at 1493. The insured bears the burden of proving coverage, and to demonstrate a duty to indemnify it must present facts sufficient to demonstrate coverage. See Data Specialties, Inc. v. Transcontinental Insurance Co., 125 F.3d 909, 911 (5th Cir.1997); Block, 744 S.W.2d at 944. 18 Here, Northern argues that Western has failed to meet its burden of introducing facts demonstrating that Sparks was covered by Northern's policy. Unable to contest Sparks' liability, they argue that no facts in the record indicate the manner in which Sparks' liability arose. Specifically, they argue that nothing indicated that Sparks' liability arose from his real estate management activity, which is a necessary precondition to coverage. 1 Western first responds by claiming that the factual scenario outlined in the plaintiff's petition clearly indicates that at the time in question Sparks was engaged in real estate management activity for the FDIC respecting the building. This is correct but not of itself sufficient. The duty to indemnify requires facts, and factual allegations in a petition do not necessarily all become facts merely because of a settlement of the suit. In Block, the court refused to find facts indicating coverage that were recited in a settlement agreement dispositive on the duty to indemnify. See Block, 744 S.W.2d at 943. The court affirmed on the grounds that uncontroverted testimony demonstrated that the plaintiff had carried its burden of proving coverage. Id. at 944. Here, we do not even have an attempt to embed the relevant facts in the settlement agreement--we have only the allegations made in the underlying petitions. These allegations do not constitute facts for the purpose of establishing coverage under Northern's policy. 19 Nevertheless, the limited facts in the record support the district court's grant of summary judgment for Western. The fact that Sparks was managing the house on behalf of the FDIC at the time of the requisition and installation of the water heater and the fire is uncontested on appeal, and Northern has conceded that Sparks is covered under the policy for his real estate management activities. In its answer to Western's complaint, Northern did not contest Western's position that the fire--and thus Sparks' settlement liability--was traceable to the recent acquisition and installation of a defective water heater. Because of the posture of the case, we can also assume that Sparks' negligence caused the fire--if Northern breached its duty to defend, it cannot challenge Sparks' liability. The question then becomes whether we can assume from these facts that Sparks' liability arose from his acting as a real estate manager, which would bring him within Northern's policy. 20 Curiously, the parties do not explore cases construing real estate manager language in insurance policies. We were unable to discover any relevant published Texas cases. However, other jurisdictions have construed similar policy language. These cases have generally looked to see whether the entity claiming additional insured status by virtue of a similar clause undertook its claimed real estate management activity primarily in order to benefit the named insured--thus entitling it to coverage--or in pursuit of its own interests. Thus a hotel cannot claim coverage under a policy issued to an organization it was hosting, since its provision of oversight and security on the premises was driven by its financial interest in satisfying customers and its statutory duties to protect its guests. See Insurance Co. of North America v. Hilton Hotels U.S.A., Inc., 908 F.Supp. 809, 817 (D. Nevada 1995). See also California Union Insurance Co. v. City of Walnut Grove, 857 F.Supp. 515, 522 (S.D.Miss.1994) (City, as lessor of property, was not real estate manager for tenant despite performing some maintenance work--any work was done to further its own interests as owner). Similarly, a tenant in possession cannot seek shelter under such an additional insured clause in his landlord's policy merely because the tenant undertook some maintenance work on the property. See Jackson v. East Baton Rouge Parish School Board, 348 So.2d 739, 741 (La.App. 1st Cir.1977) (while state entity using space in a Parish school building may have undertaken management tasks, it did so to serve its own purposes and not acting as a real estate manager for the name[d] insured); Savoy v. Action Products Co., Inc., 324 So.2d 921, 923 (La.App. 3d Cir.1975) (stressing that ordinary meaning of manager implies action on behalf of another and not oneself, and any action tenant took that might be construed as managing property was merely fulfilling the tenant's own legal obligations). However, when an entity undertakes management activity solely or primarily on behalf of others, and it owes duties to the property which derive from the duties owed to or by those it serves, it may claim coverage under such a policy. See Fireman's Fund Insurance Co. v. Vordermeier, 415 So.2d 1347, 1349-50 (Fla. 4th DCA 1982) (in negligence action arising from child's fall from window, receiver appointed to manage property was covered under policy since he was managing property on behalf of named insured as well as creditors). See also First National Bank of Palmerton v. Motor Club of America Insurance Co., 708 A.2d 69, 72-73 (N.J.App.Div.1997) (mortgagee in possession benefitted mortgagor through continued operation and maintenance and thus could claim coverage as a manager). 21 Here, as Northern has conceded, Sparks was a real estate manager for the FDIC, the named insured and owner of the house. Under the logic of the above cases, he may claim coverage under the policy for any action he took in pursuit of the FDIC's legal or economic interests. Under Texas law, the FDIC has a duty to make diligent efforts to repair or remedy conditions that materially affect the health or safety of tenants after a request has been received. See Tex. Prop.Code Ann. § 92.052 (Vernon 1995). In any event, it is clear beyond question that as a landlord the FDIC had an economic interest in satisfying tenants and insuring the building was attractive to potential tenants. Obviously, the provision, or continued provision, of hot water to tenants was in the FDIC's economic interest. Northern does not dispute that the fire stemmed from the installation of a water heater, presumably in pursuit of the FDIC's economic and/or legal interests. 22 To the extent that Sparks had any connection to the building's water heater at all--and we must assume he did since we must assume his causative negligence--it may properly be inferred to have arisen from his action or inaction in performance of the FDIC's duties or interests respecting the water heater. As the FDIC's agent, Sparks was charged with the execution of its duties and the furtherance of its interests respecting its tenants. And in carrying out this charge, Sparks undertook to offer services that he should have recognized had to be carefully performed for the protection of third persons--the tenants. Accordingly, he may be held liable for physical harm to the tenants that arises out of his failure to exercise reasonable care in performing the landlord's role. Cf. Restatement (Second) of Torts § 324A (1977); Seay v. Travelers Indem. Co., 730 S.W.2d 774, 777 (Tex.App.--Dallas 1987, no writ) (section 324A is the law in Texas); Rao v. Rodriguez, 923 S.W.2d 176, 180 (Tex.App.--Beaumont 1996, no writ) (property manager could be held liable for failure to install smoke detectors despite fact statute insulated landlord from liability in absence of tenant complaint). We do not have facts that precisely indicate how Sparks was negligent. He might have negligently hired and supervised another party who actually selected or installed the water heater, which apparently was the plaintiffs' theory in the underlying lawsuit. Or he might have picked out and installed the unit himself. For our purposes, it does not matter. The point is that any action Sparks took can be properly inferred to have been taken in his agency capacity to benefit the named insured--fulfilling its statutory duties and/or pleasing its tenants or otherwise furthering its interests. 23 Northern argues, however, that Sparks' liability could also have arisen from another source, one that would not trigger coverage under its policy. Most of Northern's argument rests on its reliance on legally irrelevant distinctions between Sparks and his sole proprietorships. 2 To the extent that it does not, we find that a genuine issue of fact has not been created. Western was not required to introduce facts disproving every theoretically possible scenario under which Sparks could become liable--it was not required to show affirmatively that Sparks did not undertake water heater maintenance in a recreational capacity. On a motion for summary judgment, the movant bears the burden of introducing evidence which, if uncontroverted, would entitle the movant to judgment as a matter of law. By introducing uncontroverted evidence that, at all relevant times, the FDIC owned the building, Sparks was its real estate manager for the building, and the fire, a cause of which must be assumed to be Sparks' negligence, arose from a water heater that was defective and defectively installed there, Western met its burden in this connection. At this point, the burden shifted to Northern to point to specific evidence demonstrating a genuine issue of fact. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). 24 While Northern argues that Sparks' liability might be traced to an action outside the scope of real estate management, it does not direct our attention to any specific facts that call into question whether Sparks performed his actions in fulfillment of the FDIC's duties or interests and not his own separate interests. It does not even assert that, for example, Sparks was not granted the authority to install water heaters by the FDIC and thus was acting wholly outside the scope of his agency. And it fails even to suggest any alternative theory of Sparks' assumed liability that would place it outside the ambit of duties performed on behalf of the FDIC, let alone provide factual support for such a theory. The best it can do in this regard is to argue that Sparks--who judging by the names of his sole proprietorships had a restoration business that was separate from his management business--may have been engaging in installation activity beyond the scope of a typical building manager's duty. While it is possible that a manager might hire a contractor to move and hook up a water heater, the fact that Sparks may have chosen not to do so does not alter the fact that the task was undertaken on behalf of the FDIC and that it was within the building manager's authority. It was thus presumptively at least in part a building management activity. There is no factual allegation suggesting otherwise. We conclude that the district court did not err in holding that the record properly supported summary judgment for Western (subject only to clarification regarding the third amended petition's missing pages).Conclusion 25 On this record, we cannot be absolutely sure that the third amended petition triggered Northern's duty to defend and thus that Northern owed a duty to indemnify. Since we expect that this matter can easily be cleared up below, we remand for a determination of the contents of the third amended petition's missing pages. If the contents of these pages do not deviate materially from the above-referenced factual allegations contained in the second amended petition, Western is entitled to summary judgment on all issues. 26 VACATED and REMANDED with instructions.