Court Opinion

ID: 36031
Source: CourtListenerOpinion
Date Created: 2010-04-25 19:35:52+00
Date Added: 2024-06-11T17:14:48.979403
License: Public Domain

United States Court of Appeals
                                                               Fifth Circuit
                                                            F I L E D
                   UNITED STATES COURT OF APPEALS
                        For the Fifth Circuit               August 17, 2004

                                                        Charles R. Fulbruge III
                                                                Clerk
                            No. 03-10793

                   MT. HAWLEY INSURANCE COMPANY,

                                              Plaintiff-Appellant,

                               VERSUS

                    LEXINGTON INSURANCE COMPANY,

                                               Defendant-Appellee.

            Appeal from the United States District Court
             For the Northern District of Texas, Dallas
                          (3:02-CV-1700-G)

Before GARWOOD, WIENER, and DeMOSS, Circuit Judges.

PER CURIAM:*

      Plaintiff-Appellant Mt. Hawley, a lessee’s insurer, brought

suit to recover from Defendant-Appellee Lexington, a lessor’s

insurer, under theories of subrogation and/or contribution for fire

damage to insured equipment, which occurred while the equipment was

in the possession of Bryan Excavation, the lessee (Mt. Hawley’s

insured).   The facts were stipulated to by the parties and each

  *
   Pursuant to 5TH CIR. R. 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opinion should not be published and is not precedent except under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 CIR. R. 47.5.4.
party filed a motion for summary judgment.                The district court

denied   Mt.    Hawley’s    motion    and   granted      Lexington’s     motion.

Mt. Hawley now appeals.         We affirm the district court.

                                  BACKGROUND

     On July 24, 2002, Mt. Hawley Insurance Company (“Mt. Hawley”)

filed suit against Lexington Insurance Company (“Lexington”) in the

162nd Judicial District Court of Dallas County, Texas.                 The case

was timely removed on August 9, 2002, to the United States District

Court for      the   Northern   District    of   Texas   based   on    diversity

jurisdiction.

     The issue in dispute is whether a lessee’s property insurer

(Mt. Hawley) may recover under theories of subrogation and/or

contribution from a lessor’s property insurer (Lexington) for fire

damage to insured equipment which was in the possession and control

of the lessee (Mt. Hawley’s insured). Mt. Hawley claims Lexington,

as the lessor’s insurer, is required to contribute one-half of a

$164,900 settlement Mt. Hawley reached with its insured, Bryan

Excavation, in an underlying lawsuit involving coverage for the

excavator.

     After the parties agreed to a set of stipulated facts, the

parties filed cross motions for summary judgment on the issue of

coverage. On June 23, 2003, the district court granted Lexington’s

motion for summary judgment, denied Mt. Hawley’s motion for summary

judgment, and entered final judgment in favor of Lexington.

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     The stipulated facts are as follows:

     On February 21, 2000, a Model 325BL Caterpillar Excavator

caught fire and was destroyed while being used by Brian Neal d/b/a

Bryan Excavation to clear debris at a development site.           At the

time of the fire, Bryan Excavation was leasing the excavator from

Elite Rentals, Ltd. (“Elite”).

     The lease provided:

     Lessee [Bryan Excavation] is fully responsible for
     equipment including loss destruction, or damage, whether
     with or without fault on part of lessee. Lessee [Bryan
     Excavation] agrees to pay Elite Rentals, Ltd. for any
     repairs, or replacements at Elite Rentals, Ltd.’s
     established prices for similar repairs, parts or
     accessories. . . .

     Lessee [Bryan Excavation] agrees to procure, take out and
     keep in force and effect during the time that the Lease
     and Rental Agreement is in effect a policy of Insurance
     covering any injury, damage, or loss to the equipment.

     At the time of the loss, Bryan Excavation was insured by

Mt. Hawley.    Following the loss, Bryan Excavation demanded Mt.

Hawley provide coverage for the loss to leased property. A dispute

subsequently   arose   between   Bryan   Excavation   and   Mt.   Hawley

regarding the valuation of the loss.     Bryan Excavation ultimately

sued Mt. Hawley for breach of contract, violations of the Texas

Deceptive Trade Practices Act, and violations of Article 21.21 of

the Texas Insurance Code.        Ultimately, Mt. Hawley settled its

lawsuit with Bryan Excavation and paid its insured $164,900 for a

release of all contractual and extracontractual claims related to

the damage to the excavator.     The check was made payable to Bryan

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Excavation and Elite.

     After settling the lawsuit with Bryan Excavation, Mt. Hawley

sought for the lessor’s insurer, Lexington, to contribute $82,450

for the damage that Mt. Hawley admits was caused while the insured

excavator was in the possession of its own insured.            Mt. Hawley

believed it was entitled to the proceeds of Lexington’s policy with

Elite under theories of contribution and subrogation.

     Other notable facts stipulated by the parties include:

     (1) Bryan Excavation is not a named insured or additional
     insured under the Lexington policy;

     (2) Lexington’s insured, Elite, is not a named insured or
     additional insured under the Mt. Hawley policy but is a
     loss payee under the Mt. Hawley policy;

     (3) Mt. Hawley is not an insured under the Lexington
     policy;

     (4) Elite never submitted a claim for coverage for the
     excavator under the Mt. Hawley Policy;

     (5) At no time during the investigation or settlement of
     Bryan Excavation’s insurance claim with Mt. Hawley did
     Mt. Hawley ever advise Elite that it was an insured under
     the Mt. Hawley policy and in fact Mt. Hawley’s own
     counsel in this action advised Elite that Elite did not
     need to be a party to the settlement Mt. Hawley reached
     with Bryan Excavation because he “did not believe there
     exists any conceivable claims that Elite may have against
     Mt. Hawley.”

     Finally, Elite did not accept the Mt. Hawley policy proceeds

in exchange for a release of Bryan Excavation’s liability for the

damage to the rented excavator.            In fact, as set forth in the

stipulated   facts,   prior   to   Bryan    Excavation’s   negotiation   of

Mt. Hawley’s $164,900 settlement payment, Elite’s counsel informed

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Bryan Excavation it did not agree that Mt. Hawley’s original

estimate of $174,900 ($10,000 more than Mt. Hawley paid Bryan

Excavation because there was a $10,000 deductible) “represented the

fair   market   value   or    the   replacement   value   for   the   machine

destroyed,” and Elite would not waive any rights or remedies it

might have with respect to recovery of amounts properly due it by

Bryan Excavation for the destruction of the excavator pursuant to

the rental agreement.         Elite’s counsel claimed Bryan Excavation

owed $203,000 for the damaged excavator.          Bryan Excavation did not

contest this fact and agreed pursuant to the terms of the rental

agreement that it was obligated to pay Elite more than what was

paid by Mt. Hawley.          Because of the lease agreement with Bryan

Excavation, Elite made a conscious decision not to involve its own

personal insurance with Lexington for payment for the fire damage

to the excavator, but instead has looked solely to Bryan Excavation

to fulfill its contractual requirement to pay for the damage to the

excavator. It is undisputed that, after informing Lexington of its

desire to pursue its claim directly from Bryan Excavation, Elite

has never requested Lexington respond to the loss.

       On appeal, Mt. Hawley asserts the district court erred in

denying its motion for summary judgment and granting Lexington’s

motion for summary judgment. Specifically, Mt. Hawley asserts that

this is a case of “double insurance” and Elite is a common insured

under both policies.         According to Mt. Hawley, it is entitled to

subrogation (i.e., to step into the shoes of Elite) and enforce

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Elite’s contractual right to recover under the Lexington policy.

Alternatively, Mt. Hawley argues that if Elite is not a common

insured the Mt. Hawley policy is for the benefit of Elite and

therefore, under the doctrine of equitable contribution, Mt. Hawley

is entitled to recover one-half of Mt. Hawley’s $164,900 settlement

with its insured, Bryan Excavation.

                             DISCUSSION

     In this case, the parties have reached certain stipulations

regarding the facts of the case and, therefore, there are no

genuine issues of material fact left to be determined.   FED. R. CIV.

P. 56(c).   When the material facts are not in genuine dispute, the

only questions presented to the court on appeal are questions of

law which are reviewed de novo.       Am. Indem. Lloyds v. Travelers

Prop. & Cas. Ins. Co., 335 F.3d 429, 435 (5th Cir. 2003).

     Under Texas law, an insurer’s right to subrogation derives

from the rights of its insured, and is limited to those rights;

there can be no subrogation where the insured has no cause of

action against the defendant. Powell v. Brantley Helicopter Corp.,

396 F. Supp. 646, 650 (E.D. Tex. 1975); Guillot v. Hix, 838 S.W.2d
230, 232 (Tex. 1992); Fishel’s Fine Furniture v. Rice Food Mkt.,

474 S.W.2d 539, 541 (Tex. Civ. App.-Houston [14th Dist.] 1971, writ

dism’d).    The subrogee stands in the shoes of the one whose rights

it claims, and the extent of the subrogee’s remedy and the measure

of its rights are controlled by those possessed by the subrogor.

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McAllen State Bank v. Linbeck Constr. Corp., 695 S.W.2d 10, 24 &

n.5 (Tex. App.-Corpus Christi 1985, writ ref’d n.r.e.).

     Here, it is undisputed Bryan Excavation is Mt. Hawley’s

insured.   It is further undisputed Bryan Excavation was not named

as an insured or additional insured under Lexington’s policy with

Elite.   Consequently, when Mt. Hawley steps into the shoes of its

insured, Bryan Excavation, it has no express contractual right to

receive payment from Lexington via subrogation.           Therefore, the

district court correctly concluded that Mt. Hawley cannot assert a

subrogation claim against the Lexington policy.

     In an effort to avoid Lexington’s summary judgment, Mt. Hawley

argues that Elite was an insured in the Mt. Hawley insurance policy

and therefore Mt. Hawley can step into the shoes of Elite and make

a claim under Elite’s Lexington Policy.           There are no facts to

support Mt. Hawley’s argument. In fact, Mt. Hawley’s stipulations,

admissions, and conduct establish that Elite is not an insured

under the Mt. Hawley policy.            The district court rejected Mt.

Hawley’s attempt to change positions on its relationship with Elite

in the middle of the litigation and was correct to do so.

     Further,   Elite   is   not   an    implied-in-law   co-insured,   as

Mt. Hawley alternatively argues.          Ignoring its own stipulations,

admissions,   and   conduct,   Mt.   Hawley    argues   that   Lexington’s

insured, Elite, should be an insured under the Mt. Hawley policy

based on the equitable principal of implied-in-law co-insured.

There is, however, no basis to conclude that Elite has standing

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under the Mt. Hawley policy as an implied-in-law co-insured.                  The

equitable insured status is a remedy fashioned to protect a lessor

where the lessee fails to comply with its obligations under the

lease to obtain insurance coverage for the leased property.                 Cable

Communications Network, Inc. v. Aetna Cas. & Sur. Co., 838 S.W.2d
947, 950 (Tex. App.—Houston [14th Dist.] 1992, no writ).                 Here, it

is undisputed that the lease required Bryan Excavation to take out

a policy covering its personal liability for any loss or damage to

the rented equipment.          It is further undisputed Bryan Excavation

did in fact take out a policy with Mt. Hawley covering a portion of

its liability for the damage to the excavator, and that Mt. Hawley

paid Bryan Excavation $164,900, for the damage that was caused to

the excavator while it was in the possession of Bryan Excavation.

Based    on   these   facts,    the   remedy     offered   under   the   implied

co-insured theory is not proper.

     In summary, the requirement in the lease that Bryan Excavation

purchase insurance simply represents a bargained-for arrangement to

provide a source from which Bryan could secure funds to wholly or

partly discharge certain of its repair/replacement obligations as

lessee   that   might   arise     under       particular   circumstances.      In

addition, there was nothing in the lease agreement that required

Bryan Excavation to procure insurance on Elite’s behalf and/or name

them as an insured, additional insured, or loss payee.                      It is

obvious from this rental agreement that the parties to the lease

all intended that Bryan Excavation was solely responsible for the

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protection of the excavator while it was in Bryan Excavation’s

possession as leased property. This was the commercial expectation

of     these    parties     and    the    insurance       policies         reflect     this

understanding. Therefore, the district court correctly decided the

subrogation issue.

       In addition to its effort to subrogate against Lexington,

Mt. Hawley asserts the existence of the Lexington policy makes the

two companies “co-insurers” on the excavator, thus making Lexington

obligated to contribute equally in Mt. Hawley’s settlement with

Bryan Excavation.         Mt. Hawley seeks contribution from Lexington on

the    ground     that    it     and   Lexington       have     a    common    legal    and

contractual obligation to pay for the actual cash value of the

excavator pursuant to the policies’ “other insurance” clauses.

       “For an insurer to be entitled to equitable contribution from

other insurers, the policies in question must insure the same

party, the same interest, and the same risk.”                         Union Indem. Ins.

Co. of N.Y. v. Certain Underwriters at Lloyd’s, 614 F. Supp. 1015,

1016    (S.D.    Tex.     1985).       Here,     Mt.    Hawley’s       and    Lexington’s

obligations are separate and independent.                       Mt. Hawley’s policy

protects       Bryan    Excavation’s     liability       for        loss   occasioned    to

equipment it rents from third parties.                    Elite is not identified

anywhere in the Mt. Hawley policy as an insured.                               Similarly,

Lexington’s policy protects only Elite’s interests in the equipment

it rents to third parties.                Not only is Bryan Excavation not

mentioned       in     Elite’s    policy,       the    policy       specifically     notes

                                            9
noninsureds have no right to the policy and affirmatively states:

“[t]his insurance is for your [Elite’s] benefit.                  No third party

having    temporary     possession      of    your     property,     such    as     a

transportation company, lessee or rentee, can benefit directly or

indirectly from it.”

      In light of the differences between the two policies, the

“other insurance” provision in the insurance contract between

Mt. Hawley and Bryan Excavation does not impose liability on

Lexington (via Elite).          Because in this case the risks and the

interests which were insured are not identical, the district court

was   correct    in   finding    that   Mt.   Hawley     is    not   entitled      to

contribution from Lexington in discharging its liability to its

insured, Bryan Excavation.        Lexington was, at most, contractually

bound to pay Elite’s claims for any losses it sustained because of

the fire.    Elite, not wanting to utilize its own insurance (at the

risk of higher premiums) for a fire caused by its lessee, pursued

no claim under the Lexington policy.                 Instead, Elite and Bryan

Excavation agreed that because Bryan Excavation caused the damage,

Bryan Excavation would pursue the claim for fire damage to Elite’s

equipment    against    Bryan’s   insurance     company,       Mt.   Hawley,      and

personally pay the balance of any amount not recovered thereunder

from the policy proceeds.            Therefore, the district court was

correct     in   granting   summary     judgment       to     Lexington     on    the

contribution issue.

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                              CONCLUSION

     Having   carefully   reviewed     the   record   of   this   case,   the

parties’ respective briefing and arguments, and for the reasons set

forth   above,   the   decision   of      the   district    court   denying

Mt. Hawley’s motion for summary judgment and granting Lexington’s

motion is affirmed.

AFFIRMED.

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