Court Opinion

ID: 4667634
Source: CourtListenerOpinion
Date Created: 2021-03-15 13:01:22.39285+00
Date Added: 2024-06-11T08:02:58.250282
License: Public Domain

Case: 19-51012     Document: 00515778491          Page: 1    Date Filed: 03/12/2021

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

                                                                            FILED
                                                                       March 12, 2021
                                   No. 19-51012                        Lyle W. Cayce
                                                                            Clerk

   Bitco General Insurance Corporation, formerly known
   as Bituminous Casualty Corporation,

                                                             Plaintiff—Appellee,

                                       versus

   Monroe Guaranty Insurance Company, A Member of the
   FCCI Insurance Group,

                                                         Defendant—Appellant.

                  Appeal from the United States District Court
                       for the Western District of Texas
                            USDC No. 5:18-CV-325

   Before Higginbotham, Jones, and Higginson, Circuit Judges.
   Per Curiam:*
          In “the summer of 2014,” a farm hired 5D Drilling & Pump Service
   Inc. (“5D”) to drill a 3600-foot-deep commercial irrigation well through the
   Edwards Aquifer. In June 2016, the farm sued 5D for breach of contract and

          *
            Pursuant to 5th Circuit Rule 47.5, the court has determined that this
   opinion should not be published and is not precedent except under the limited
   circumstances set forth in 5th Circuit Rule 47.5.4.
Case: 19-51012     Document: 00515778491          Page: 2   Date Filed: 03/12/2021

                                   No. 19-51012

   negligence after 5D purportedly drilled the well with “unacceptable
   deviation” and then abandoned the well after it “stuck” the drill bit in the
   bore hole. 5D notified two insurance companies claiming they both had a
   duty to defend it against the suit. One of the companies refused, claiming it
   had no duty to defend because the alleged property damage occurred, at least
   in relevant part, outside the policy’s coverage period. The policy provided
   coverage from October 6, 2015 to October 6, 2016, and, according to the
   parties’ stipulation, the drill bit became stuck “in or around November
   2014.”
         Key to deciding this case is whether this court, applying Texas law,
   can consider extrinsic evidence—the stipulated date the drill bit became
   stuck—when deciding whether a duty to defend exists. This is an important
   and determinative question of Texas law as to which there is no controlling
   Texas Supreme Court precedent. Thus, we certify the question to that court.

   CERTIFICATION FROM THE UNITED STATES COURT OF
   APPEALS FOR THE FIFTH CIRCUIT TO THE SUPREME COURT
   OF TEXAS, PURSUANT TO. ART. 5, §3-C OF THE TEXAS
   CONSTITUTION AND RULE 58 OF THE TEXAS RULES OF
   APPELLATE PROCEDURE.

   TO THE SUPREME COURT OF TEXAS AND THE HONORABLE
   JUSTICES THEREOF:

                           I. STYLE OF THE CASE
          The style of the case is BITCO General Insurance Corporation
   (“BITCO”), Plaintiff–Appellee, v. Monroe Guaranty Insurance Company
   (“Monroe”), Defendant–Appellant, in the United States Court of Appeals

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Case: 19-51012          Document: 00515778491                Page: 3       Date Filed: 03/12/2021

                                            No. 19-51012

   for the Fifth Circuit, on appeal from the judgment of the United States
   District Court for the Western District of Texas. Federal jurisdiction over
   the issues presented in this case is based on 28 U.S.C. § 1332.
                          II. STATEMENT OF THE FACTS
           Both parties to the present suit insured 5D for different coverage
   periods. Monroe’s policy provided coverage for certain property damage
   that occurred during its policy period, October 6, 2015 to October 6, 2016.
   The policy did not, however, cover any “continuation, change or
   resumption” of property damage “during or after the policy period” that was
   known “prior to the policy period” “in whole or in part.” 1
           In “the summer of 2014,” David Jones, doing business as J&B Farms
   of Texas, hired 5D to drill a 3600-foot-deep commercial irrigation well
   through the Edwards Aquifer. In June 2016, Jones sued 5D and its President
   for breach of contract and negligence. Jones alleged that 5D commenced
   drilling and “reached the Edwards Aquifer at approximately 3,500 [feet],”
   but “while negligently drilling ‘stuck’ the drilling bit in the bore hole,
   rendering the well practically useless for its intended/contracted for
   purpose.” 5D then “failed and refused to plug the well, retrieve the drill bit,
   and drill a new well.” Jones asserted that 5D drilled the well “with
   unacceptable deviation” and then “abandon[ed]” the well. 2 Importantly,

           1
              The relevant portion of the agreement states, more fully, that the “insurance
   applies . . . only if . . . [p]rior to the policy period, no insured listed under Paragraph 1[] of
   Section II – Who Is An Insured and no ‘employee’ authorized by you to give or receive
   notice of an ‘occurrence’ or claim, knew that the ‘bodily injury’ or ‘property damage’ had
   occurred, in whole or in part. If such a listed insured or authorized ‘employee’ knew, prior
   to the policy period, that the ‘bodily injury’ or ‘property damage’ occurred, then any
   continuation, change or resumption of such ‘bodily injury’ or ‘property damage’ during or
   after the policy period will be deemed to have been known prior to the policy period.”
           2
             Jones further alleged that 5D “failed to case the well through the Del Rio clay,
   allowing detritus to slough off the clay, falling down the bore and filling up the well.” He

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                                            No. 19-51012

   BITCO and Monroe stipulated that the drill bit was stuck in the bore hole
   “during drilling” “in or around November 2014.”
           5D notified BITCO and Monroe of Jones’s lawsuit and demanded that
   both insurers provide a defense. BITCO ultimately agreed to do so but
   Monroe refused, arguing, inter alia, that it had no duty to defend 5D because
   the alleged property damage fell outside the relevant policy period. 3 BITCO
   sought a declaratory judgment that Monroe owed a duty to defend 5D in the
   lawsuit. Both insurers moved for summary judgment, and the district court
   adopted the magistrate judge’s recommendation and granted summary
   judgment to BITCO. Monroe timely appealed to this court.
                                      III. DISCUSSION
           Texas law governs this diversity case. On questions of Texas law, we
   first consider the final decisions of the Supreme Court of Texas. When no
   decision answers a given question, we may certify that question to the Texas
   Supreme Court. Austin v. Kroger Tex. L.P., 746 F.3d 191, 196 (5th Cir. 2014).
   The Texas Constitution—as well as the Texas Rules of Appellate
   Procedure—permit that court to “answer questions of law certified to it by
   any federal appellate court if the certifying court is presented with
   determinative questions of Texas law having no controlling Supreme Court
   precedent.” TEX. CONST. art. V, § 3-c(a); TEX. R. APP. P. 58.1. The issues
   in this case present just such a question regarding the proper use of extrinsic
   evidence to determine whether a duty to defend exists.

   also alleged that 5D’s actions damaged “the aquifer” and “the free flow of water in the
   aquifer.” Finally, Jones alleged that 5D failed to notify the appropriate state regulatory
   authorities. The pleadings do not provide dates for any of the alleged negligent acts or
   property damage.
           3
               Jones’s lawsuit subsequently settled.

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                                            No. 19-51012

           The eight-corners rule is considered a “settled feature of Texas law.”
   Richards v. State Farm Lloyds, 597 S.W.3d 492, 499 (Tex. 2020). Under that
   rule, whether an insurance company has a duty to defend a given suit should
   be determined solely by comparing the four-corners of the pleadings with the
   four-corners of the insurance agreement. 4 But this rule is not absolute under
   Texas law. Some Texas courts, as well as the Fifth Circuit under our well-
   established Erie-guess, 5 make narrow exceptions to the rule and consider
   extrinsic evidence under certain circumstances. See id. at 496 n.4 (collecting
   cases of Texas courts following this court’s so-called Northfield exception or
   applying something similar).              And the Texas Supreme Court recently
   articulated its first explicit exception to the eight-corners rule where “there
   is conclusive evidence that groundless, false, or fraudulent claims against the
   insured have been manipulated by the insured’s own hands in order to secure
   a defense and coverage where they would not otherwise exist.” Loya Ins. Co.
   v. Avalos, 610 S.W.3d 878, 882 (Tex. 2020). Nevertheless, recognizing that
   the “varied circumstances under which such arguments for the consideration
   of evidence may arise are beyond imagination,” the Texas Supreme Court
   has not definitively ruled on every possible exception. Richards, 597 S.W.3d
   at 500 (considering a certified question from the Fifth Circuit, rejecting a
   “policy-language exception” to the eight-corners rule, but expressly
   declining to comment on the so-called Northfield exception and “reserv[ing]
   comment” on other possible exceptions).

           4
              “Under the eight-corners or complaint-allegation rule, 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.” GuideOne
   Elite Ins. Co. v. Fielder Rd. Baptist Church, 197 S.W.3d 305, 308 (Tex. 2006) (citations
   omitted).
           5
               See Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523 (5th Cir. 2004).

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                                      No. 19-51012

          Monroe asks this court to consider the extrinsic evidence of a
   stipulated date related to the incident to determine its duty to defend this
   suit. BITCO counters that such evidence cannot be considered under
   Texas’s eight-corners rule and, even if it were considered, it does not
   establish that Monroe had no duty to defend.
          This court held in Northfield that we will consider extrinsic evidence
   if two requirements are met: (1) “when it is initially impossible to discern
   whether coverage is potentially implicated,” and (2) “when the extrinsic
   evidence goes solely to a fundamental issue of coverage which does not
   overlap with the merits of or engage the truth or falsity of any facts alleged in
   the underlying case.”       Northfield Ins. Co. v. Loving Home Care, Inc.,
   363 F.3d 523, 531 (5th Cir. 2004). Although the Northfield exception has not
   been adopted by the Texas Supreme Court, it has been favorably cited.
   GuideOne Elite Ins. Co. v. Fielder Rd. Baptist Church, 197 S.W.3d 305, 308–09
   (Tex. 2006) (favorably describing this court’s two-part test and concluding
   the facts of that case did not satisfy it); see Ooida Risk Retention Grp., Inc. v.
   Williams, 579 F.3d 469, 475–76 (5th Cir. 2009) (recognizing this favorable
   treatment, applying the test, and considering extrinsic evidence); see also
   Richards, 597 S.W.3d at 496–97 (Texas Supreme Court recognizing that it
   “has never had occasion to address” the exception but acknowledging “its
   widespread use”).
          Whether Texas law permits courts to consider the undisputed date of
   an incident as relevant to determine whether a duty to defend exists is an
   application of the Northfield exception. Receiving a definitive answer to this
   question is important because ascertaining the date of an occurrence is a
   frequently encountered “gap” in third party pleadings. Tactically, the
   omitted date can be key to the question of the duty to defend the underlying
   suit. See Michael Menapace, Going beyond the Four Corners to Deny a Defense:
   A Critique of Section 13(3) of the Restatement of Liability Insurance, 53 TORT

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                                         No. 19-51012

   TRIAL & INS. PRAC. L.J. 795, 809 (2018); see also Guar. Nat’l Ins. Co. v. Vic
   Mfg. Co., 143 F.3d 192, 194 (5th Cir. 1998) (“But, where the basis for the
   refusal to defend is that the events giving rise to the suit are outside the
   coverage of the insurance policy, facts extrinsic to the claimant's petition may
   be used to determine whether a duty to defend exists.” (quoting Gonzales v.
   American States Ins. Co. of Tex., 628 S.W.2d 184, 187 (Tex. App. 1982))
   (emphasis in original)).
           Before the new exception was articulated in Loya, this court and
   others applied Texas law to permit extrinsic evidence to clarify the date of an
   occurrence under certain circumstances. See, e.g., Primrose Operating Co. v.
   Nat’l Am. Ins. Co., 382 F.3d 546, 550 (5th Cir. 2004) (looking to extrinsic
   evidence, the parties’ stipulation that some polluting spills occurred after a
   certain date that overlapped with coverage, to conclude that there was a duty
   to defend); cf. Ooida, 579 F.3d at 476 (where an applicable exclusion
   depended on tandem-driving a commercial motor vehicle, the panel applied
   Northfield and considered extrinsic evidence to negate duty to defend). 6

           6
            See also Century Sur. Co. v. Dewey Bellows Operating Co., No. H-08-1901, 2009
   WL 2900769, at *8 (S.D. Tex. Sept. 2, 2009) (unpublished) (concluding that an exclusion
   applied and no duty to defend existed after looking to extrinsic evidence found in a
   counterclaim because “the underlying petition does not contain facts that allow the court
   to determine when Dewey knew of an ‘occurrence’ and when it reported that
   ‘occurrence[]’”); Boss Mgmt. Serv., Inc. v. Acceptance Ins. Co., No. H-06-2397, 2007 WL
   2752700, at *11–12 (S.D. Tex. Sept. 17, 2007) (unpublished) (considering extrinsic
   “occupancy certificates” to determine the “earliest date after which the damage
   appeared,” where the underlying pleadings vaguely alleged damage after the relevant
   buildings were “opened for occupancy” or after “completion of the Project,” and
   concluding that coverage was “potentially implicated”).
           On the other hand, BITCO points to three, arguably factually distinguishable cases,
   where courts have found temporally imprecise pleadings sufficient to implicate the duty to
   defend. See Landstar Homes Dallas, Ltd. v. Mid-Continent Cas. Co., No. 3:10–CV–0014–K,
   2010 WL 5071688, at *1, *4–5 (N.D. Tex. Dec. 13, 2010) (unpublished) (pleadings
   asserting relevant activity “as early as May 23, 2001” “potentially” stated a claim for
   property damage where the relevant policy periods ranged from May 3, 2001 to May 3,

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                                         No. 19-51012

   Commentators have weighed in favorably to considering extrinsic evidence
   in limited circumstances.           See STEVEN PLITT, ET. AL., COUCH ON
   INSURANCE § 200:22 (3d ed. 2020) (“In determining the existence of a duty
   to defend, it has been held that extrinsic facts may be considered where the
   complaint is ambiguous or inadequate, but a court has no obligation to
   examine evidence extrinsic in determining whether the liability insurer has a
   duty to defend the underlying action where the allegations of the complaint
   are not ambiguous.” (citing cases applying Texas law)); 1 NEW APPLEMAN
   INSURANCE LAW PRACTICE GUIDE 11A.13 (2020) (“In situations, however,
   where the complaint is silent as to certain facts that may be determinative of
   coverage issues . . . insurers often can rely on extrinsic evidence to ‘fill in the
   gaps,’ at least in the context of a declaratory judgment action.” (citing
   Northfield, 363 F.3d at 529–31 (applying Texas law) and W. Heritage Ins. Co.
   v. River Entertainment, 998 F.2d 311, 313 (5th Cir. 1993) (applying Texas
   law))).
             At bottom, the present case implicates two related questions, which
   we certify in the following section:            Whether the Northfield two-part
   exception is permissible under Texas law and, if so, whether it permits a court
   to consider the date of an occurrence under the circumstances of this case.

   2007); Employers Mut. Cas. Co. v. N. Ins. Co., No. 3:08–CV–1498–G, 2010 WL 850243, at
   *4 (N.D. Tex. Mar. 11, 2010) (unpublished) (pleadings with the phrase “[s]hortly
   thereafter” in reference to August 1, 1999 were sufficiently clear to fall within a policy
   period ending on November 1, 1999); Pine Oak Builders, Inc. v. Great Am. Lloyds Ins. Co.,
   292 S.W.3d 48, 58–59 (Tex. App. Jul. 6, 2006), rev’d in part on other grounds, 279 S.W.3d
   650 (Tex. 2009) (where the relevant policies contained “‘continuous or repeated
   exposure’ language,” “each insurer would have a duty to defend against any claim that
   alleges potential property damage from a continuous or repeated exposure falling within a
   relevant policy period”).

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                                    No. 19-51012

                        IV. QUESTIONS CERTIFIED
          We certify the following questions of state law to the Supreme Court
   of Texas:
          1.     Is the exception to the eight-corners rule articulated in
                 Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d
                 523 (5th Cir. 2004), permissible under Texas law?
          2.     When applying such an exception, may a court consider
                 extrinsic evidence of the date of an occurrence when
                 (1) it is initially impossible to discern whether a duty to
                 defend potentially exists from the eight-corners of the
                 policy and pleadings alone; (2) the date goes solely to
                 the issue of coverage and does not overlap with the
                 merits of liability; and (3) the date does not engage the
                 truth or falsity of any facts alleged in the third party
                 pleadings?
   We disclaim any intention or desire that the Court confine its reply to the
   precise form or scope of the questions certified. The answers provided will
   determine the issues on appeal in this case. The record in this case and copies
   of the parties’ briefs are transmitted herewith.
          The panel retains cognizance of the appeal in this case pending
   response from the Supreme Court of Texas and hereby certifies the above
   questions of law.
                                                      QUESTIONS CERTIFIED.

                                                   A True Copy
                                                   Certified Mar 12, 2021

                                                   Clerk, U.S. Court of Appeals, Fifth Circuit

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