Court Opinion

ID: 9396472
Source: CourtListenerOpinion
Date Created: 2023-05-22 18:00:51.169046+00
Date Added: 2024-06-11T17:19:17.245610
License: Public Domain

Case: 22-10107         Document: 00516758318             Page: 1      Date Filed: 05/22/2023

              United States Court of Appeals
                   for the Fifth Circuit                                              United States Court of Appeals
                                                                                               Fifth Circuit

                                                                                             FILED
                                                                                         May 22, 2023
                                         No. 22-10107
                                                                                        Lyle W. Cayce
                                                                                             Clerk
   Allied World National Assurance Company,

                                                                     Plaintiff—Appellant,

                                             versus

   Old Republic General Insurance Corporation; Oscar
   Renda Contracting, Incorporated,

                                                                  Defendants—Appellees.

                      Appeal from the United States District Court
                          for the Northern District of Texas
                                USDC No. 4:21-CV-431

   Before Stewart, Willett, and Oldham, Circuit Judges.
   Andrew S. Oldham, Circuit Judge:*
          The question presented is whether Old Republic General Insurance
   Corporation has a duty to defend its insured under a Texas commercial
   general liability policy. The district court said no. We say yes and reverse.

          *
              This opinion is not designated for publication. See 5th Cir. R. 47.5.
Case: 22-10107        Document: 00516758318          Page: 2   Date Filed: 05/22/2023

                                      No. 22-10107

                                           I.
             Tarrant Regional Water District hired IPL Partners to work on an
   integrated pipeline in Venus, Texas. IPL, in turn, hired Oscar Renda
   Contracting, Inc., to perform excavation and pipelaying duties on the project.
   Nabor Machuca-Mercado worked on the pipeline project as a laborer for
   Oscar Renda.
             In its contract with IPL, the Water District agreed to provide
   insurance for the project. Both Old Republic General Insurance Corporation
   and Allied World National Assurance Company issued policies to cover the
   project.
             Old Republic issued two relevant policies. First, Old Republic issued
   a commercial general liability (“CGL”) policy to the Water District that
   covered up to $2 million per accident involving certain enrolled contractors
   on the pipeline project including Oscar Renda. Second, Old Republic issued
   an employers’ liability (“EL”) policy directly to Oscar Renda that covered
   up to $1 million per accident.
             Allied World issued an excess liability policy to the Water District,
   which provided $5 million in coverage excess of the CGL policy and EL
   policy.
             One day Machuca-Mercado disappeared from the pipeline worksite.
   Minutes later Machuca-Mercado was found buried up to his head in pea
   gravel. Tragically, he suffocated to death.
             Machuca-Mercado’s children sued Oscar Renda (Machuca-
   Mercado’s employer) for negligence in Texas state court. See Valera v. Oscar
   Renda Contracting, Inc., Case No. 18-8351-431 (Dist. Ct., Denton County,
   TX). Specifically, the Valera complaint alleges that Oscar Renda was
   negligent, grossly negligent, negligent per se, and violated OSHA standards

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Case: 22-10107      Document: 00516758318           Page: 3   Date Filed: 05/22/2023

                                     No. 22-10107

   in failing to properly hire, train, retain, and supervise its employees, agents,
   and independent contractors, and in failing to maintain a safe jobsite. The
   Valera complaint further alleges that Oscar Renda is vicariously liable for the
   negligent acts of its employees and seeks $20 million in wrongful death,
   survival, and punitive damages.
          Oscar Renda tendered the Valera suit to Old Republic for defense and
   indemnity. Old Republic denied coverage to Oscar Renda under the CGL
   policy based on the CGL policy’s employer liability exclusion but
   acknowledged that Oscar Renda’s EL policy covers the Valera suit.
          Allied World filed this declaratory judgment action against Old
   Republic, and the parties cross-moved for summary judgment. The district
   court granted partial summary judgment to Old Republic because it
   concluded that the CGL policy excludes coverage for the Valera suit. Allied
   World timely appealed.
                                         II.
          We review de novo the district court’s grant of partial summary
   judgment to Old Republic and apply the same standards on appeal that the
   district court applied below. See Landmark Am. Ins. Co. v. SCD Mem’l Place
   II, LLC, 25 F.4th 283, 285 (5th Cir. 2022).
          It’s undisputed that the preliminary conditions for coverage under the
   CGL policy are met. The narrow question on appeal is whether the district
   court correctly concluded that an exclusion to the CGL policy applies to the
   Valera suit.
          Texas law controls that question. See Lyda Swinerton Builders, Inc. v.
   Ok. Sur. Co., 903 F.3d 435, 444 (5th Cir. 2018). Under Texas law, the duty
   to defend obligates an insurer to “defend the insured in any lawsuit that
   alleges and seeks damages for an event potentially covered by the policy.”

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                                    No. 22-10107

   Colony Ins. Co. v. Peachtree Constr., Ltd., 647 F.3d 248, 253 (5th Cir. 2011)
   (quotation omitted). “The duty to defend depends on the language of the
   policy.” Pine Oak Builders, Inc. v. Great Am. Lloyds Ins. Co., 279 S.W.3d 650,
   655 & n.28 (Tex. 2009). Whether an insurer has a duty to defend is a question
   of law. See Ooida Risk Retention Grp., Inc. v. Williams, 579 F.3d 469, 472 (5th
   Cir. 2009).
          Texas courts apply the ordinary rules of contract interpretation to
   insurance policies. Don’s Bldg. Supply, Inc. v. OneBeacon Ins. Co., 267 S.W.3d
   20, 23 (Tex. 2008). Under those interpretive rules, a policy’s “words and
   phrases” are “given their plain and ordinary meaning.” Aggreko, LLC v.
   Chartis Specialty Ins. Co., 942 F.3d 682, 688 (5th Cir. 2019). “An
   interpretation that gives each word meaning is preferable to one that renders
   one surplusage.” U.S. Metals, Inc. v. Liberty Mut. Grp., Inc., 490 S.W.3d 20,
   23–24 (Tex. 2015). “No one phrase, sentence or section [of a contract]
   should be isolated from its setting and considered apart from other
   provisions.” RSUI Indem. Co. v. The Lynd Co., 466 S.W.3d 113, 118 (Tex.
   2015). Instead, courts must interpret the policy as whole. Forbau v. Aetna Life
   Ins. Co., 876 S.W.2d 132, 133 (Tex. 1994).
          If a contract is unambiguous, it will be enforced as written. Don’s Bldg.
   Supply, 267 S.W.3d at 23. A contract provision is not ambiguous merely
   because the parties disagree about its scope. ACE Am. Ins. Co. v. Freeport
   Welding & Fabricating, Inc., 699 F.3d 832, 842 (5th Cir. 2012). But when “a
   contract is susceptible to more than one reasonable interpretation,” courts
   “resolve any ambiguity in favor of coverage.” Don’s Bldg. Supply, 267 S.W.3d
   at 23. Further, under Texas law, “exceptions and limitations of liability are
   even more strictly construed against the insurer.” W. Heritage Ins. Co. v.
   Magic Years Learning Ctrs. & Child Care, Inc., 45 F.3d 85, 88 (5th Cir. 1995).

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                                      No. 22-10107

            Two provisions in the CGL policy are important: the Exclusion and
   the Endorsement.
            The Exclusion. In the CGL policy’s main coverage form, there is a
   section titled “Section 2. Exclusions, e. Employer’s Liability.” The
   Exclusion states that the CGL policy does not apply to “bodily injur[ies]” to:
            (1) An “employee” of the insured arising out of and in the
               course of:
                   (a) Employment by the insured; or
                   (b) Performing duties related to the conduct of the
                      insured’s business; or
            (2) The spouse, child, parent, brother or sister of that
                “employee” as a consequence of paragraph (1) above.
            The Endorsement. A related endorsement near the end of the CGL
   policy is entitled “Fellow Employee Wrap-Up Exclusion Deleted.” Relevant
   here, the Endorsement modifies the Exclusion. The text of the Endorsement
   reads:
            With respect to Supervisory personnel, SECTION I –
            COVERAGES, COVERAGE A BODILY INJURY AND
            PROPERTY DAMAGE LIABILITY, 2. Exclusions, e.
            Employer’s Liability, is amended to include:
                   This paragraph e does not apply to “bodily injury” to
                   an “employee” when such “bodily injury” is caused by
                   another “employee.”

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          We first (A) explain why reversal is required under our reading of the
   CGL policy. Then we (B) explain why reversal is also required under the
   district court’s reading of the CGL policy.
                                          A.
          The CGL policy requires reversal based on its text and structure. All
   agree that the Endorsement amends the Exclusion to include an additional
   sentence (the “Carveout Sentence”). The Carveout Sentence states that the
   Exclusion does not apply to a “bodily injury” to one “employee” that was
   “caused by” another “employee.” Put differently, the Endorsement
   narrows the Exclusion by carving out a class of bodily injuries—employee
   injuries caused by other employees.
          The Endorsement also includes a prefatory phrase that reads “[w]ith
   respect to Supervisory personnel.” But it’s clear from the Endorsement’s
   structure that that prefatory phrase has no effect whatsoever on the CGL
   policy. That’s because the Endorsement amends the Exclusion by adding the
   indented text only to the Exclusion. The prefatory phrase, by contrast, is
   located at the beginning of an un-indented line of text that ends by stating the
   Exclusion is “amended to include” followed by a colon and then the indented
   Carveout Sentence. The effect of the Endorsement couldn’t be plainer: Only
   the indented language after the colon gets added to the policy. The prefatory
   phrase is located before the colon. So the prefatory phrase “[w]ith respect to
   Supervisory personnel” is not added to the policy and has no legal effect.
          Under our reading, the Endorsement’s sole addition to the Exclusion
   is the Carveout Sentence. The modified Exclusion—with the added text
   from the Endorsement italicized—reads like this:
      2. Exclusions
          This insurance does not apply to:
                                      *        *      *

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                                    No. 22-10107

          e. Employer’s Liability
                 “Bodily injury” to:
                         (1) An “employee” of the insured arising out of
                             and in the course of:
                               (a) Employment by the insured; or
                               (b) Performing duties related to the
                                   conduct of the insured’s business; or
                         (2) The spouse, child, parent, brother or sister
                             of that “employee” as a consequence of
                             paragraph (1) above.
            This exclusion applies whether the insured may be liable as
            an employer or in any other capacity and to any obligation to
            share damages with or repay someone else who must pay
            damages because of the injury.
            This exclusion does not apply to liability assumed by the
            insured under an “insured contract”.
            This paragraph e does not apply to “bodily injury” to an
            “employee” when such “bodily injury” is caused by another
            “employee.”

          The practical effect is that any on-the-job bodily injuries to employees
   caused by other employees receive coverage under the CGL policy post-
   Endorsement.

          Under our reading, this is an easy case. The allegations in the Valera
   complaint make it plain that the underlying litigation involves a bodily injury
   to an employee that was caused by another employee. First in the “Parties”
   section, the Valera complaint alleges: “Whenever in this petition it is alleged
   that [Oscar Renda] committed any act or omission, it is meant that [Oscar
   Renda]’s officers, directors, vice-principals, agents, servants, and/or

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   employees committed such act or omission.” Next in the “Cause of Action”
   section the complaint alleges all the different ways Oscar Renda (a.k.a. its
   employees per the previous allegation) was negligent: “[Oscar Renda]’s
   gross negligence, negligence, and or negligence per se, were a proximate
   cause of Mr. Mercado’s injuries and death, including but not limited to, to
   wit: In failing to properly hire, train, retain, and supervise employees . . .
   [listing many other ways Oscar Renda was negligent] . . . . Each of these acts
   and omissions, whether taken singularly or in any combination constitute
   negligence, which proximately caused the injuries and death of the
   decedent.” Taken together, these allegations implicate the CGL policy and
   require reversal under our reading of the policy.
                                         B.
          The district court and the parties assume that the Endorsement’s
   prefatory phrase “[w]ith respect to Supervisory personnel” limits the
   application of the Carveout Sentence. But even on that view, we still must
   reverse. That’s for three reasons: (1) Allied World’s proposed reading is a
   reasonable one; (2) it does not create surplusage; and (3) we construe any
   ambiguity in favor of coverage.
                                          1.
          Allied World reads the prefatory phrase as limiting the Carveout
   Sentence to underlying suits alleging that the conduct of supervisory
   personnel contributed to the employee’s injury. This reading is reasonable.
          The parties don’t dispute the definitions and grammatical function of
   the words “with respect to Supervisory personnel.” They agree that the
   phrase “with respect to” means “referring to,” “concerning,” or “with
   reference or regard to something.” Evanston Ins. Co. v. Atofina Petrochemicals
   Inc., 256 S.W.3d 660, 666 n. 19 (Tex. 2008) (citing The Random House
   Dictionary of the English Language 1640 (2d ed. 1987); The

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   Compact Edition of the Oxford English Dictionary 2512
   (1971)). And they agree that “supervisory” modifies “personnel” and that
   “personnel” refers to “the body of people employed in any work, staff.”
   Personnel, Oxford American Dictionary 498 (1st ed. 1980);
   Personnel, Webster’s II New College Dictionary 841 (3d ed.
   2005). The issue “is not the precise grammar of the phrase, but how it
   functions in the context” of the whole agreement. See Don’s Bldg. Supply, 267
   S.W.3d at 23.
          Given the agreed-on definitions, the most natural way to read the
   disputed phrase (assuming, of course, that it has any effect at all) is that the
   Endorsement carves out from the Exclusion lawsuits that “concern
   supervisory personnel.” Even though it came to the opposite conclusion, the
   district court seems at times to read the Endorsement this way too. For
   example, in describing “the result” of the Endorsement, the district court
   stated that “if a supervisor allegedly contributes to a fellow employee’s injury, the
   supervisor qualifies as an insured and the CGL policy covers liability for that
   injury.” (Emphasis added). This statement is more in line with Allied
   World’s understanding of the prefatory phrase than Old Republic’s.
   Assuming the prefatory phrase applies at all, Allied World’s proposed
   reading is at least reasonable.
                                            2.
          Further, Allied World’s proposed interpretation does not create
   surplusage. That’s because the result of the Endorsement under Allied
   World’s view is that there is coverage in instances—like the Valera suit—
   where a supervisor allegedly contributes to a fellow employee’s injury and
   the employer is sued.
          Old Republic’s reading of the prefatory phrase, by contrast, does
   create surplusage. Old Republic would read it as limiting the Carveout

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                                       No. 22-10107

   Sentence to underlying lawsuits that name supervisory personnel as
   defendants. But Old Republic effectively concedes that under its preferred
   reading, the Exclusion doesn’t apply to individual supervisory personnel in
   the first place. Even so, it argues that the preference to avoid surplusage can
   be overcome where “it is impossible to avoid the redundancy without
   rendering other language superfluous.” Red Br. 28 (citing Whole Women’s
   Health v. Jackson, 642 S.W.3d 569, 581–82 (Tex. 2022)). Here, of course, it’s
   not impossible to avoid the surplusage—as Allied World’s interpretation
   demonstrates.
                                            3.
          As we held above, the CGL policy clearly covers the Valera suit. But
   even assuming that the CGL policy is “susceptible to more than one
   reasonable interpretation,” we “resolve any ambiguity in favor of” Allied
   World and coverage. Don’s Bldg. Supply, 267 S.W.3d at 23; accord Landmark
   Am. Ins., 25 F.4th 283, 286 (5th Cir. 2022) (“When an insurance contract is
   ambiguous—meaning that it is susceptible to more than one reasonable
   interpretation—we adopt the interpretation that affords coverage.”).
   Further, given that the disputed provision is an exclusion, Texas law dictates
   that it should be “even more strictly construed against the insurer.” Magic
   Years, 45 F.3d at 88.
                                   *        *         *
          For these reasons, we REVERSE the district court’s grant of partial
   summary judgment to Old Republic and REMAND for further proceedings
   consistent with this opinion.

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