Court Opinion

ID: 6330311
Source: CourtListenerOpinion
Date Created: 2022-04-13 00:00:24.785583+00
Date Added: 2024-06-11T09:22:59.863051
License: Public Domain

Case: 19-51012     Document: 00516277848         Page: 1   Date Filed: 04/12/2022

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

                                                                            FILED
                                                                        April 12, 2022
                                  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.
   Patrick E. Higginbotham, Circuit Judge:
           Monroe Guaranty Insurance Company appeals a summary judgment
   ruling holding that it owed a duty to defend a commercial driller, which it
   insured along with BITCO General Insurance Corporation, from a suit filed
   in Texas state court. Monroe maintains that it had no duty to defend the
   driller because the damage either occurred outside its policy period or was
   excluded under the policy’s terms. Having certified two questions to the
   Texas Supreme Court related to an insurance company’s duty to defend, and
   with the benefit of its thoughtful response, we affirm.
Case: 19-51012         Document: 00516277848             Page: 2        Date Filed: 04/12/2022

                                          No. 19-51012

                                               I.
         BITCO and Monroe issued commercial general liability insurance
   policies to 5D Drilling & Pump Service Inc. BITCO issued a policy to 5D in
   effect from October 6, 2013 to October 6, 2014.1 Monroe issued a policy to
   5D in effect from October 6, 2015 to October 6, 2016. Monroe’s policy
   provided coverage for “those sums that the insured becomes legally obligated
   to pay as damages because of . . . ‘property damage’ to which this insurance
   applies.” To be covered by the policy, the property damage must have
   “occur[ed] during the policy period.” The Monroe policy carved out certain
   forms of property damage from its coverage. Relevant here are two “business
   loss” exclusions for “property damage” to:
         (5) That particular part of real property on which [the named
         insured] or any contractors or subcontractors working directly
         or indirectly on [the named insured’s] behalf are performing
         operations, if the “property damage” arises out of those
         operations; or
         (6) That particular part of any property that must be restored,
         repaired or replaced because “[the named insured’s] work”
         was incorrectly performed on it.
         The parties’ coverage dispute arose from 5D’s drilling operations on
   a farm in Frio County, Texas. In the summer of 2014, David Jones hired 5D
   to drill a 3,600-foot-deep commercial irrigation well through the Edwards
   Aquifer, which runs beneath his farm. 5D allegedly failed to drill the well
   properly, and in June 2016, Jones sued 5D for breach of contract and
   negligence. For purposes of this appeal, Jones’s Third Amended Petition is
   the operative pleading.

         1
             The specifics of the BITCO policy are not at issue here.

                                                2
Case: 19-51012            Document: 00516277848             Page: 3       Date Filed: 04/12/2022

                                             No. 19-51012

            5D provided notice of Jones’s lawsuit to BITCO and Monroe,
   asserting that both insurers had a duty to defend 5D against Jones’s claims.
   Under Texas law, a duty to defend arises when the allegations in the
   complaint state a cause of action within the terms of the policy.2 BITCO
   agreed to defend 5D after receiving the Third Amended Petition. Monroe,
   however, refused to defend 5D, citing the two business risk exclusions in its
   policy and asserting that the alleged property damage occurred outside the
   policy period. The underlying Jones lawsuit against 5D has since settled. This
   case concerns only whether Monroe’s policy gave rise to a duty to defend 5D
   in the underlying lawsuit.3
            When Monroe refused to defend 5D, BITCO filed this case, seeking a
   declaratory judgment that Monroe also owed a duty to defend 5D in the Jones
   lawsuit and seeking to recover for Monroe’s share of the defense of 5D. Both
   BITCO and Monroe moved for summary judgment. The magistrate judge
   issued a report and recommendation granting summary judgment to BITCO.
   She concluded that Monroe had a duty to defend 5D “[b]ecause the Third
   Amended Petition alleges ‘property damage’ caused by an ‘occurrence’ that
   could have occurred during the policy period, and because the business-risk
   exclusions cited by Monroe bar coverage for some, but not all, of the alleged
   ‘property damage.’”4 The district court adopted the magistrate’s report and
   recommendation. Monroe timely appealed.

            2
                GuideOne Elite Ins. Co. v. Fielder Rd. Baptist Church, 197 S.W.3d 305, 308 (Tex.
   2006).
            3
                It is undisputed that Bitco owed 5D a duty to defend in the underlying lawsuit.
            4
           Bitco Gen. Ins. Corp. v. Monroe Guar. Ins. Co., No. SA18CV00325FBESC, 2019
   WL 3459248, at *3 (W.D. Tex. July 31, 2019), report and recommendation adopted, No. SA-
   18-CA-325-FB, 2019 WL 11838850 (W.D. Tex. Sept. 27, 2019).

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Case: 19-51012           Document: 00516277848              Page: 4      Date Filed: 04/12/2022

                                            No. 19-51012

                                                 II.
           We review a district court’s grant of summary judgment de novo.5
   Summary judgment is appropriate “if the movant shows that there is no
   genuine dispute as to any material fact and the movant is entitled to judgment
   as a matter of law.”6 “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.”7
                                                 III.
           The parties agree that Texas law governs this diversity case. Liability
   insurance policies impose two obligations on an insurer: a “duty to defend”
   and a “duty to indemnify.”8 These obligations are “distinct and separate
   duties.”9 The duty to defend—the duty at issue—is an insurer’s obligation
   to provide a legal defense in “any lawsuit brought against the insured that
   alleges and seeks damages for an event potentially covered by the policy, even
   if groundless, false or fraudulent.”10 It is triggered at the outset of the
   policyholder’s underlying litigation.11 The duty to indemnify is the insurer’s
   obligation to pay “all covered claims and judgments against an insured,” and
   it arises only after the policyholder’s underlying liability has been

           5
               Ratliff v. Aransas County, Texas, 948 F.3d 281, 287 (5th Cir. 2020).
           6
                Fed. R. Civ. P. 56(a).
           7
            Amerisure Ins. Co. v. Navigators Ins. Co., 611 F.3d 299, 304 (5th Cir. 2010) (internal
   quotation marks omitted).
           8
               D.R. Horton-Texas, Ltd. v. Markel Int’l Ins. Co., 300 S.W.3d 740, 743 (Tex. 2009).
           9
                Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d 819, 821–22 (Tex. 1997).
           10
           D.R. Horton-Texas, 300 S.W.3d at 743 (quoting 14 Lee R. Russ & Thomas
   F. Segalla, Couch on Insurance § 200:3 (3d ed. 2009)).
           11
                Id. at 743–44 & n.2.

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Case: 19-51012           Document: 00516277848               Page: 5       Date Filed: 04/12/2022

                                             No. 19-51012

   established.12 “The duty to defend is broader than the duty to indemnify”
   and may be triggered where an insurer has no duty to indemnify.13
           Under Texas law, courts determine whether an insurer’s duty to
   defend has been triggered by using the “eight corners” or “complaint
   allegation” rule, meaning that “only two documents are ordinarily relevant
   to the determination of the duty to defend.”14 This rule confines the court’s
   consideration to the underlying pleadings “without regard to the truth or
   falsity” of their allegations and to the relevant insurance policy.15
           The party seeking coverage has the initial burden of establishing that
   the underlying claims potentially state a cause of action covered by the
   policy.16 If a complaint alleges at least one cause of action that is
   “potentially” within the policy’s coverage, the insurer must defend the
   entire lawsuit. If there is doubt as to whether the complaint states a covered
   cause of action, the court resolves the doubt in favor of coverage.17 When
   pleadings in the underlying lawsuit have been amended, the court analyzes
   the duty to defend by examining the “latest, and only the latest, amended
   pleadings.”18

           12
                Id.
           13
                Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523, 528 (5th Cir. 2004).
           14
                GuideOne, 197 S.W.3d at 308.
           15
              Id. (“Facts outside the pleadings, even those easily ascertained, are ordinarily
   not material to the determination and allegations against the insured are liberally construed
   in favor of coverage.”).
           16
            Gilbert Texas Const., L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118, 124
   (Tex. 2010).
           17
                Heyden Newport Chem. Corp. v. S. Gen. Ins. Co., 387 S.W.2d 22, 26 (Tex. 1965).
           18
                Rhodes v. Chicago Ins. Co., 719 F.2d 116, 119 (5th Cir. 1983) (applying Texas law).

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Case: 19-51012          Document: 00516277848              Page: 6      Date Filed: 04/12/2022

                                            No. 19-51012

                                                 A.
           The parties dispute whether any of the “property damage” alleged
   could have occurred during Monroe’s policy period, between October 6,
   2015 and October 6, 2016. BITCO contends that the Jones pleading permits
   an inference that some of the alleged damage occurred within Monroe’s
   policy period. The pleading alleged that in “the summer of 2014, Plaintiff
   contracted with Defendants . . . to drill a commercial irrigation well, for
   Plaintiffs’ business,” but it was silent as to when 5D lodged its drill bit in the
   bore; the detritus “slough[ed] off” and filled up the well; and 5D’s
   negligence impaired the aquifer’s flow. Given the dearth of specific dates in
   the pleadings and the “liberal interpretation” we are bound to give those
   pleadings, Jones alleged that some damage occurred within Monroe’s policy
   period. 19 As the magistrate found, any damage must have occurred after “the
   summer of 2014,” when Jones hired 5D to drill a well on his farm, but before
   June 30, 2016, when Jones filed suit against 5D—a period that covers
   approximately eight of the twelve months during which Monroe’s policy was
   in force.20
           In response, accepting that “it is unclear whether any Aquifer Damage
   or Well Bore Damage occurred within [its] Policy Period” based on the Jones
   allegations, Monroe points to extrinsic evidence, specifically, a stipulation
   between the parties stating that 5D’s drill bit became stuck in the well “in or
   around November 2014.” Monroe argues that because the stipulation
   confirms that the drill bit became stuck during drilling in or around
   November 2014, almost one year before the inception of the its policy, it

           19
            See Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. Merchants Fast Motor Lines, Inc.,
   939 S.W.2d 139, 141 (Tex. 1997).
           20
                Bitco Gen. Ins. Corp., 2019 WL 3459248, at *5.

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Case: 19-51012          Document: 00516277848               Page: 7      Date Filed: 04/12/2022

                                            No. 19-51012

   would entirely preclude the alleged property damage from coverage.
   Typically, the eight-corners rule prevents this court from considering any
   extrinsic evidence. However, in Northfield this Court held that Texas law
   recognized a limited exception to the eight-corners rule “when it is initially
   impossible to discern whether coverage is potentially implicated and 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.”21
          As the question of extrinsic evidence is paramount in this case, we
   certified two questions to the Texas Supreme Court. We asked, first, whether
   the Northfield exception to the “eight-corners” rule is permissible under
   Texas law, and second, whether the date of an occurrence is the type of
   extrinsic evidence that we may consider. The Texas Supreme Court held:
          [T]he eight-corners rule remains the initial inquiry to be used
          to determine whether a duty to defend exists. But if the
          underlying petition states a claim that could trigger the duty to
          defend, and the application of the eight-corners rule, due to a
          gap in the plaintiff’s pleading, is not determinative of whether
          coverage exists, Texas law permits consideration of extrinsic
          evidence provided the evidence (1) goes solely to an issue of
          coverage and does not overlap with the merits of liability, (2)
          does not contradict facts alleged in the pleading, and (3)
          conclusively establishes the coverage fact to be proved.22

          21
               Northfield, 363 F.3d at 528 (emphasis in the original).
          22
             Monroe Guar. Ins. Co. v. BITCO Gen. Ins. Corp., No. 21-0232, 2022 WL 413940,
   at *7 (Tex. Feb. 11, 2022).

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Case: 19-51012           Document: 00516277848              Page: 8   Date Filed: 04/12/2022

                                             No. 19-51012

   Thus, the Texas Supreme Court confirms that we may depart from the strict
   limitations of the eight-corners rule, when the above requirements are met.
   The extrinsic evidence at issue here is a stipulation that proves that the drill
   bit got stuck in or around November 2014. Monroe argued that this
   stipulation relieves it of a duty to defend, because it proves that the property
   damage occurred in November 2014, months before its policy took effect.
   However, the Texas Supreme Court concluded we could not consider this
   evidence because although “evidence of the date of an occurrence may be
   considered if it meets the other requirements described above,” the
   stipulation “does not pass the test.”23 The stipulation would impermissibly
   overlap with determining the merits of liability because “[a] dispute as to
   when property damage occurs also implicates whether property damage
   occurred on that date, forcing the insured to confess damages at a particular
   date to invoke coverage, when its position may very well be that no damage
   was sustained at all.”24 Monroe acknowledges that the Texas Supreme
   Court’s decision forecloses its argument that it had no duty to defend based
   on when the damage occurred. Thus, the Jones pleading alleges damage
   potentially within the Monroe policy period, sufficient to trigger the duty to
   defend.
                                                 B.
          Monroe contends that even if the Jones pleading alleges damage
   potentially within its policy period, it still has no duty to defend because all
   the damage 5D allegedly caused falls within two policy exclusions. Monroe
   has the burden to establish that the coverage exclusions apply to all of the

          23
               Id.
          24
               Id. (emphasis in the original).

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Case: 19-51012            Document: 00516277848            Page: 9   Date Filed: 04/12/2022

                                            No. 19-51012

   damage Jones alleged.25 Generally “[w]hen the language of an insurance
   policy is susceptible to more than one construction, it should be construed
   strictly against the insurer and liberally in favor of the insured.”26 When
   policy exclusions are at issue, “an even more stringent construction is
   required,” and we “must adopt the construction of an exclusionary clause
   urged by the insured as long as that construction is not itself unreasonable,
   even if the construction urged by the insurer appears to be more reasonable
   or a more accurate reflection of the parties’ intent.”27
           Monroe’s policy excludes from coverage damage to “that particular
   part of [] property” on which 5D was “performing operations” or which
   “must be restored, repaired or replaced because ‘your work’ was incorrectly
   performed on it.” Monroe’s policy defines “your work” to mean “[w]ork or
   operations performed by [the named insured] or on [the named insured’s]
   behalf” and “[m]aterials, parts or equipment furnished in connection with
   such work or operations.” So, the applicability of either exception depends
   on whether the Jones pleading alleges damage to something other than “that
   particular part of [] property” on which 5D performed its work or operations.
   If so, then the exclusions do not bar all coverage and Monroe has a duty to
   defend.
           Here, Monroe cannot carry its burden because it cannot show that
   either exception unambiguously applies to all the damage alleged, nor can it
   show that it is unreasonable to construe the exclusionary phrase “that
   particular part” as applying only to the portion of the property actually

           25
                Gilbert Texas Const., 327 548 S.W.3d at 124.
           26
             Gonzalez v. Mid-Continent Cas. Co., 969 F.3d 554, 557 (5th Cir. 2020) (internal
   quotations removed).
           27
                Id. at 561.

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Case: 19-51012         Document: 00516277848                Page: 10        Date Filed: 04/12/2022

                                            No. 19-51012

   pierced by the well.28 Monroe contends—and BITCO does not seriously
   dispute—that any damage 5D caused to the well itself is excluded from
   coverage because the well clearly constitutes that particular part of the Jones
   property on which 5D performed operations. The difficulty for Monroe lies
   in the alleged damage to the Edwards Aquifer. The pleading alleges that 5D’s
   negligence “damag[ed] the aquifer” and “damag[ed] the free flow of water
   in the aquifer.” Monroe contends that the aquifer damage is excluded under
   the policy because the aquifer itself was “[t]he real property on which 5D was
   working.” To support this view, Monroe notes that 5D contracted with Jones
   to drill a “well through the Edwards Aquifer to approximately 3,600 feet.”
           We cannot accept Monroe’s argument because it invites us to
   construe the policy exclusions for “that particular part of [] property” as
   covering the whole Edwards Aquifer, or at least the whole of it running
   beneath the Jones farm. At a minimum, such an interpretation strains the
   meaning of the words “particular part.” Another panel of this court,
   addressing identically-worded exclusions, noted that “[t]he plain and
   ordinary meaning of ‘particular’ is ‘[r]elating to a part or portion of anything;
   separate; sole; single; individual; specific; as, the particular stars of a
   constellation.’ ‘Part,’ in turn, means ‘something less than a whole.’”29
   Monroe effectively asks us to read its policy exclusions broadly and against
   the insured—the precise opposite of what Texas law requires us to do—as
   Monroe asks us to exclude damage done anywhere within the aquifer from

           28
               See id. at 560 (We are “obliged to construe the pleadings liberally and resolve all
   doubts regarding the duty to defend in favor of the duty. Where the pleading 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 . . . within the coverage
   of the policy.”) (internal quotations and citation omitted).
           29
          Id. at 560–61 (quoting WEBSTER’S NEW INTERNATIONAL
   DICTIONARY 1781, 1783 (2d ed. 1934; 1950)).

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                                           No. 19-51012

   coverage, even though 5D would have pierced the aquifer only at one specific
   point.30 We decline to do so.
           The overbreadth of Monroe’s interpretation is underscored by the
   reality that the Edwards Aquifer is an expansive subterranean system,
   extending under ten counties; the “total surface area overlying the Aquifer is
   approximately 3,600 square miles.”31 The aquifer’s sheer size belies
   Monroe’s contention that it is subsumed by the phrase “that particular
   part.”32 We find that Monroe’s duty to defend 5D was triggered by the
   allegations in the Jones lawsuit.
                                              ****
           We AFFIRM the district court’s order granting summary judgment
   to BITCO on its claim for declaratory judgment and denying summary
   judgment to Monroe.

           30
              Gore Design Completions, Ltd. v. Hartford Fire Ins. Co., 538 F.3d 365, 370 (5th Cir.
   2008) (“Exclusions are narrowly construed, and all reasonable inferences must be drawn
   in the insured’s favor.”).
           31
               Edwards    Aquifer     Authority,  About     the   Edwards                Aquifer,
   https://www.edwardsaquifer.org/science-maps/about-the-edwards-aquifer/.
           32
               The variety of constituent features within the aquifer makes it dissimilar from
   the steel storage tank damaged in Southwest Tank & Treater Mfg. Co. v. Mid-Continent
   Casualty, where the defective work rendered the entire tank unusable, which is not so for
   the aquifer here. 243 F. Supp. 2d 597 (E.D. Tex. 2003). Similarly, the reasoning in Kinsale
   Ins. Co. v. ETOPSI Oil & Gas LLC does not apply. 477 F. Supp. 3d 555, 557 (E.D. Tex.
   2020), aff’d sub nom. Kinsale Ins. Co. v. McBride Operating L.L.C., 855 F. App’x 234 (5th
   Cir. 2021). In Kinsale, the damage alleged was to the property on which the insured was
   working, here the damage goes beyond the well 5D worked on, to the Edwards Aquifer
   itself.

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