Court Opinion

ID: 35684
Source: CourtListenerOpinion
Date Created: 2010-04-25 19:31:37+00
Date Added: 2024-06-11T17:14:42.807165
License: Public Domain

United States Court of Appeals
                                                                        Fifth Circuit
                                                                       F I L E D
                IN THE UNITED STATES COURT OF APPEALS
                                                                        June 24, 2004
                          FOR THE FIFTH CIRCUIT
                                                                    Charles R. Fulbruge III
                          ______________________                            Clerk

                               No. 03-20635
                          ______________________

                     NAUTILUS INSURANCE COMPANY

                                                        Plaintiff-Appellant
                                   versus

                      JOHN GANNON, INC.; ET AL.

                                                                     Defendants

          RAY KELLER; DUKE-KELLER OUTDOOR ADVERTISING, INC.

                                                        Defendants-Appellees

         ___________________________________________________

           Appeal from the United States District Court for
           the Southern District of Texas, Houston Division
                         (USDC No. H-02-1072)
         ___________________________________________________

Before JONES, DENNIS, and PICKERING, Circuit Judges.

DENNIS, Circuit Judge:*

     Nautilus Insurance Company (“Nautilus”) brought this action

against John Gannon, Inc. (“JGI”), Ray Keller, and Duke-Keller

Outdoor    Advertising,    Inc.    (collectively    “Keller”)        seeking     a

declaratory   judgment    that    Nautilus   has   no   duty   to    defend     or

     *
      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this opinion should not be published and is not precedent except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.

                                      1
indemnify Keller from JGI’s suit against Keller.                     The district

court held that Nautilus had both a duty to defend and a duty to

indemnify and entered a final judgment.                We reverse.

                                     BACKGROUND

       JGI wanted to put up a billboard in a Sam’s Club parking lot

near Conroe, Texas.           JGI contacted Ray Keller, who allegedly

represented that he was an agent of Frances Coberly of Wal-

Mart/Sam’s Club and that he had authority to give JGI a lease to

erect the billboard.          JGI and Keller entered into an agreement

regarding the construction of the billboard and a document entitled

“Land Lease Agreement.”           After JGI applied for a billboard permit

with   the   Texas      Department    of    Transportation     (“TXDOT”),     TXDOT

discovered that Keller was not authorized to enter into such an

agreement on behalf of Ms. Coberly.               TXDOT denied the permit and

temporarily suspended JGI’s advertising license.

       JGI   sued    Keller   alleging,        inter   alia,   fraud,     negligent

misrepresentation, and breach of contract. Nautilus had previously

issued a commercial general liability insurance policy to Keller.

After JGI     sued      Keller,    Nautilus    filed    this   action    seeking    a

declaratory judgment that the policy provides no coverage for any

claims arising out of the JGI-Keller relationship.                      In relevant

part, the policy obligates Nautilus to cover damages that Keller is

required     to   pay    because     of    “property    damage”   caused     by    an

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“occurrence.”1   Both Nautilus and Keller filed motions for summary

judgment.   The district court ruled in favor of Keller holding,

inter alia, that JGI’s claims against Keller arguably stated an

occurrence that gave rise to property damage and held that Nautilus

had a duty to defend and to indemnify Keller.      Nautilus timely

appealed.

                              ANALYSIS

Jurisdiction

     Keller argues that this court lacks appellate jurisdiction

over this action because, Keller alleges, the district court

resolved only whether Nautilus had a duty to defend Keller and not

whether Nautilus had a duty to indemnify Keller. The Texas Supreme

Court has stated that where, as here, a trial court finds that

there is a duty to defend and “coverage may turn on the facts

actually proven in the underlying lawsuit,” it may “be necessary to

defer the resolution of indemnity issues until the liability

litigation is resolved.”    Farmers Tex. County Mut. Ins. Co. v.

Griffin, 955 S.W.2d 81, 84 (Tex. 1997).     The parties here agree

that, because the district court found a duty to defend and because

     1
      The policy provides: “We will pay those sums that the
insured becomes legally obligated to pay as damages because of a
‘bodily injury’ or ‘property damage’ to which this insurance
applies. We will have the right and duty to defend the insured
against any ‘suit’ seeking those damages. ... This insurance
applies to ‘bodily injury’ and ‘property damage’ only if: (1)
The ‘bodily injury’ or ‘property damage’ is caused by an
‘occurrence’; and (2) The ‘bodily injury’ or ‘property damage’
occurs during the policy period.”

                                 3
the question of a duty to indemnify would turn on the facts proven

in the underlying litigation between JGI and Keller, it would have

been proper for the court to defer the question of whether Nautilus

has a duty to indemnify Keller until after the litigation.

     But, rightly or wrongly, the district court held that Nautilus

had both a duty to defend Keller and a duty to indemnify Keller and

entered a “Final Judgment” granting Keller’s motion for summary

judgment.   Whether an order is subject to appeal depends on its

effect and whether it has the attributes of finality.    Glen Oaks

Utilities, Inc. v. City of Houston, 280 F.2d 330, 333 (5th Cir.

1960).   Because the district court’s order ended the litigation on

the merits, it was final.2   Quackenbush v. Allstate Ins. Co., 517

     2
       Keller argues that the judgment does not adjudicate the
question of whether Nautilus has a duty to indemnify Keller from
JGI’s claims. The “Final Judgment” grants Keller’s motion for
summary judgment, and Keller asserts that it moved for summary
judgment that Nautilus did owe a duty to defend.    But the first
paragraph of Keller’s motion for summary judgment states:
“[Keller] request[s] that the Court adjudicate under Rule 56 of
the Federal Rules of Civil Procedure that [Nautilus] does owe
[Keller] a defense and indemnity on the claims against [Keller]
by [JGI] in the underlying case out of which this coverage
dispute arose.” It is true that, at the conclusion of the
motion, Keller only mentioned the duty to defend. This
inconsistency raises a question as to the effect of the district
court’s order.
     If there is some ambiguity in the judgment regarding its
finality, this court will treat the decision as a final order if
the district court intended to effect a final dismissal of the
claim. Picco v. Global Marine Drilling Co., 900 F.2d 846, 849
n.4 (5th Cir. 1990). The district court titled the order “Final
Judgment” and included the statement: “This is a Final Judgment.”
In its supporting memorandum opinion, the court stated: “The
Court finds that Nautilus does have a duty to defend and
indemnify Keller in the underlying state case.... Accordingly

                                 4
U.S. 706, 712 (1996).    Whether the district court’s conclusions

were incorrect or premature is of no jurisdictional import.

Standard of Review

        We review a district court’s grant of summary judgment de

novo.   Baton Rouge Oil & Chem. Workers Un. v. Exxon Mobil Corp.,

289 F.3d 373, 376 (5th Cir. 2002).   We will grant summary judgment

if there is no genuine dispute as to any issue of material fact and

the moving party is entitled to judgment as a matter of law.     Id.

JGI’s claims against Keller do not allege “property damage” and,

thus, do not fall under the terms of the policy.

     We will address only the question of whether JGI’s claims

against Keller potentially state a claim for property damage, as

that issue is dispositive.   Under Texas law, “[a]n insurer’s duty

to defend is determined solely by the allegations in the pleadings

and the language of the insurance policy.”     King v. Dallas Fire

Ins. Co., 85 S.W.3d 185, 187 (Tex. 2002).     This “eight corners”

doctrine means that if the underlying claim against the insured

does not allege facts that fall within the scope of the policy, the

insurer has no duty to defend the insured.   Id.   But an insurer is

... [Keller’s] motion for summary judgment is GRANTED.” It is
clear that the district court ruled on both the duty to defend
and the duty to indemnify, thus ending the litigation on the
merits, and accordingly entered a final judgment.

                                 5
obligated to defend the insured if there is even potentially a case

under the complaint within the coverage of the policy.                Nat’l Union

Fire Ins. Co. v. Merchs. Fast Motor Lines, Inc., 939 S.W.2d 139,

141 (Tex. 1997).       All doubts regarding an insurer’s duty to defend

are resolved in favor of the insured.              King, 85 S.W.3d at 187.

      Under the policy in question, property damage includes the

“[l]oss    of    use   of   tangible   property     that   is   not   physically

injured.”       Texas law states that “tangible property is commonly

understood to be property that is capable of being handled or

touched.”       Lay v. Aetna Ins., 599 S.W.2d 684, 686 (Tex. Civ. App.

–- Austin 1980, writ ref’d n.r.e.).            It has also been defined as ".

. . such property as may be seen, weighed, measured, and estimated

by the physical senses." Id.              (citing 73 C.J.S. Property § 5

(1951)).     The district court held that JGI alleged that Keller’s

misrepresentations “caused the loss of the use of the leasehold

interest in the billboard” and that such an allegation potentially

falls within the coverage of the policy.

      Keller defends the district court’s holding, arguing that JGI

claims that it lost a leasehold interest in real property and that

a   leasehold      interest   in   real       property   constitutes    tangible

property.3      Assuming without deciding that a leasehold interest in

      3
      Keller also points out that JGI claims that it lost the use
of the billboard structure. But the billboard structure never
existed. A nonexistent billboard is not tangible property; thus,
the loss of its use cannot constitute the loss of use of tangible
property.

                                          6
real property could constitute tangible property, a review of the

pleadings in the underlying suit shows that JGI did not in fact

have a leasehold interest in real property.

      JGI’s petition indicates that the contract between JGI and

Keller stated that the parties would “jointly build the Sign, sell

the   sign   for   approximately   $400,000,    and   split   the    proceeds

fifty/fifty.”      The contract obligated Keller to “secure the lease

with Wal-Mart/Sam’s” and obligated JGI to “secure the permit.”

This agreement did not create a lease between Keller and JGI; it

only contractually obligated the parties to undertake different

tasks in an effort to build and sell the sign.

      JGI’s petition also indicates that JGI and Keller signed a

second    document,   titled   a   “Land    Lease   Agreement,”     which   JGI

attached to its petition and incorporated into its petition.                But

this agreement simply purports to grant JGI permission to apply for

a billboard permit from TXDOT.4            Thus, like the contract, this

agreement did not grant JGI a leasehold interest in the land.

Additionally, even if the agreements had purported to give JGI a

leasehold interest in the land, JGI would not have had a leasehold

interest in real property because, according to JGI’s allegations,

Keller did not have the authority to grant JGI a lease in the

      4
      The agreement provides: “As owner of 1407 Loop 336 W. I-45,
Mr. Ray Keller is authorizing John Gannon Inc. permission to
obtain all permits to erect a billboard on Mr. Ray Keller’s
property at 1407 - I-45 Loop 336 W.”

                                      7
property.   And JGI has not alleged any action on behalf of Wal Mart

or Frances Coberly that would have given Keller apparent authority

to enter into such a lease.

     JGI therefore never had a leasehold interest in real property5

but only had a contractual relationship with Keller that gave JGI

certain   expectancies.    Any   damages   for   breach   of   contract,

negligent misrepresentation, or fraud to which JGI may be entitled

are purely economic damages that do not fall within the definition

of property damage.   See, e.g., State Farm Lloyds v. Kessler, 932
S.W.2d 732, 737 (Tex. App. -- Ft. Worth, 1996, writ denied)

(holding that home buyers had alleged economic damages - not

property damages - by claiming that they did not get the home they

had bargained for because the sellers had misrepresented the

condition of the home).     Thus, Nautilus has no duty to defend

Keller against JGI’s claims and, for the same reason, no duty to

indemnify Keller for any damages stemming from those claims.6

                              CONCLUSION

     5
      Keller argues that the policy does not require that the
claimant allege ownership of the tangible property. But the
policy does require the “loss of use of tangible property,” and
JGI cannot have lost the use of the real property in question if
JGI never had the use of that property.
     6
      “[T]he duty to indemnify is justiciable before the
insured's liability is determined in the liability lawsuit when
the insurer has no duty to defend and the same reasons that
negate the duty to defend likewise negate any possibility the
insurer will ever have a duty to indemnify.” Farmers Tex. County
Mut. Ins. Co. v. Griffin, 955 S.W.2d 81, 84 (Tex. 1997).

                                  8
     JGI’s claims against Keller do not allege property damage.

Nautilus thus has no duty to defend or indemnify Keller against

JGI’s claims.   The district court’s decision granting summary

judgment in favor of Keller is reversed.     Nautilus’ motion for

summary judgment is granted, and judgment is rendered accordingly.

JUDGMENT FOR KELLER REVERSED; JUDGMENT FOR NAUTILUS RENDERED.

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