Court Opinion

ID: 33865
Source: CourtListenerOpinion
Date Created: 2010-04-25 19:09:50+00
Date Added: 2024-06-11T14:56:15.376008
License: Public Domain

United States Court of Appeals
                                                                Fifth Circuit
                                                             F I L E D
               IN THE UNITED STATES COURT OF APPEALS         January 22, 2004
                       FOR THE FIFTH CIRCUIT
                                                         Charles R. Fulbruge III
                                                                 Clerk

                           No. 03-40725
                        (Summary Calendar)

HOME DEPOT U.S.A., INC.,

                                               Plaintiff-Appellee,

                              versus

FEDERAL INSURANCE COMPANY,

                                              Defendant-Appellant.

          Appeal from the United States District Court
                for the Eastern District of Texas
                           (4:02-CV-95)

BEFORE JOLLY, WIENER, and DENNIS, CIRCUIT JUDGES.

PER CURIAM:*

     In this liability insurance coverage dispute, we are asked to

determine whether an insurance company had a duty to defend an

insured in a state court lawsuit (which has since settled).           On

cross-motions for summary judgment, the district court denied

summary judgment for Federal Insurance Company (“Federal”), the

insurance company, and granted summary judgment in favor of Home

     *
        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this opinion should not be published and is not precedent except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.
Depot U.S.A., Inc. (“Home Depot”), the insured. The district court

held that Federal breached its duty to defend Home Depot in

personal injury litigation brought by a Home Depot customer.             As

explained below and largely for the reasons stated in the district

court’s well-reasoned memorandum opinion and order, we affirm.1

                           I.   BACKGROUND FACTS

      The facts in this matter are essentially undisputed.              We,

therefore, adopt the district court’s recitation of the salient

facts and restate them in abbreviated form here.2

      Home Depot’s action for declaratory judgment has its genesis

in   an accident    that   occurred   when   Kathleen   T.   Rogers   (“Mrs.

Rogers”) was severely injured by the fall of a rug display cabinet

inside a Home Depot home improvement store in Plano, Texas.             The

display cabinet, which tipped over on Mrs. Rogers while she was

shopping in that store, contained decorative rugs manufactured by

Beaulieu, L.L.C. (“Beaulieu”).

      Several months later, Mrs. Rogers and her husband William E.

Rogers (collectively “the Rogerses”) filed suit against Home Depot

and Beaulieu in Texas state court (the “Rogers litigation”).3          They

alleged that Home Depot and Beaulieu were negligent because they:

      1
      See Home Depot, U.S.A, Inc. v. Federal Insurance Co., 241 F.
Supp. 2d 702 (E.D. Tex. 2003).
      2
          See id. at 704-05.
      3
        Subsequently, the Rogerses also sued R.D. Niven &
Associates, the manufacturer of the rug display cabinet and its
installer, Pro Marketing of Texas, Inc.

                                      2
            1.    Were aware that the top-heavy design and its
                  location made an accident a virtual certainty;

            2.    Allowed a dangerous condition to exist on Home
                  Depot’s premises;

            3.    Failed to adequately secure the display in place by
                  bolting it to the floor or wall;

            4.    Failed to warn customers           that    the    display     was
                  likely to tip over; and

            5.    Collectively they either designed, manufactured,
                  sold,   distributed,   assembled,    installed   or
                  maintained an inherently dangerous product in their
                  premises as a part of their business.

     More than a year before the accident in question, Beaulieu and

Home Depot had entered into a Vendor Buying Agreement (“VBA”) under

which Beaulieu rugs would be sold by Home Depot at its retail

stores.      The VBA required, inter alia, that Beaulieu carry a

general   liability     insurance   policy       naming    Home    Depot   as   an

additional insured.       At the time of the accident, Beaulieu was

covered under a general liability policy issued by Federal (the

“Policy”).       The   Policy   contained    a    Vendor    Endorsement    which

provided:

      Any Vendor is an insured, but only with respect to
      bodily injury or property damage arising out of the
      distribution or sale of your [Beaulieu’s] products in
      the regular course of that vendor’s business and only
      if products/completed operations coverage is provided
      under this contract.

The Policy also contained a Vendor Exclusion provision, which

stated, in pertinent part:

     No vendor is an insured with respect to...any failure to
     make such inspections, adjustments, tests, or servicing
     as the vendor has agreed to make or normally undertakes

                                      3
     to make in the usual course of business, in connection
     with the distribution or sale of your [Beaulieu’s]
     products.

In addition, appended to the Policy was a Liability Insurance

Endorsement that included a provision entitled “Who is Insured,”4

which specified, in pertinent part:

     Under Who is Insured, the following provision is added:

                                 * * *

     Any person designated below is an insured but only with
     respect to liability arising out of your [Beaulieu’s]
     operations or premises owned or rented to you.

                                 * * *

           Designated Person Or Organization

                                 * * *

           AS REQUIRED BY WRITTEN CONTRACT

     In a June 2001 letter, Home Depot demanded that Federal defend

it in the Rogers litigation.       Federal never responded to this

demand; in March 2002, Home Depot filed the instant suit in

district   court   seeking   a   judgment   declaring   Home   Depot’s

entitlement to defense and indemnification from Federal.

     In August 2002, the Rogerses entered into a confidential

settlement agreement under which Home Depot and Beaulieu agreed to

pay the Rogerses for a complete release and for the voluntary

dismissal of their claims with prejudice.       Just days before the

     4
      The Liability Insurance Endorsement supplemented the “Who is
Insured” section of the underlying Policy.

                                   4
settlement was signed, Federal executed a written agreement that it

would not contend in this case that the amount paid by Home Dept to

the    Rogerses        (1)      was    excessive,       unreasonable,   unwarranted,

improvident, voluntary or unnecessary, or (2) did not constitute

damages that Home Depot would be entitled to recover from Federal

in    the   event      that     Home    Depot       established   Federal’s   coverage

liability under the Policy.

       In the district court, Home Depot maintained —— as it does on

appeal —— that Federal breached its duty to defend Home Depot in

the Rogers litigation.                Home Depot sought indemnification for the

settlement amount that it paid in the Rogers litigation plus its

costs, including attorney’s fees, that it incurred in the Rogers

litigation and in the instant action.                     Federal counters that the

Policy does not cover Home Depot’s exposure to the claims asserted

by the Rogerses in state court; and that, as coverage of Home Depot

for the Rogerses’ claims does not exist, Federal had no duty to

defend or indemnify Home Depot in the Rogers litigation.                           The

district court granted summary judgment to Home Depot, rejecting

Federal’s contentions, and                    Federal timely filed a notice of

appeal.

                                        II.   ANALYSIS

A.     STANDARD   OF   REVIEW

                                                5
       Our review of the district court’s grant of summary judgment

in favor of Home Depot is de novo.5                 As a district court’s

interpretation of an insurance contract is a question of law, we

exercise de novo review over that determination as well.6

B.     THE EIGHT CORNERS RULE

       The parties acknowledge that we must apply the substantive law

of Texas in this diversity case.            In Texas, the duty of an insurer

to furnish a legal defense is analyzed under the “eight corners” or

“complaint allegation” rule:           “An insurer’s duty to defend is

determined by the allegations in the pleadings and the language of

the insurance policy.”7         The parties do not dispute the contents of

the documents we examine here in applying the eight corners rule:

The Rogerses’ state court complaint8 and the Policy say what they

say.       Rather, the litigants contest the legal effect of the words

contained in those documents.

       Neither do the parties quarrel substantially about the basic

principles that govern our application of the eight corners rule.

“An insurer bears the burden of proving that the allegations

       5
           Salve Regina Coll. v. Russell, 499 U.S. 225, 231 (1991).
       6
       Am. Nat’l. Gen. Ins. Co. v. Ryan, 274 F.3d 319, 323 (5th
Cir. 2001).
       7
       Nat’l Union Fire Ins. Co. v. Merchant Fast Motor Lines,
Inc., 939 S.W.2d 139, 141 (Tex. 1997). See also King v. Dallas
Fire Ins. Co., 85 S.W.3d 185, 187 (Tex. 2002).
       8
      Here, we must analyze the Plaintiffs’ First Amended Original
Petition, which is the Rogerses’ terminal pleading. See Cornhill
Ins. PLC v. Valsamis, Inc., 106 F.3d 80, 84 (5th Cir. 1997).

                                        6
contained in the underlying plaintiff’s petition are excluded from

coverage and any doubt is resolved in favor of the insured.”9                        To

satisfy this burden, Federal must prove that none of the claims

asserted by the Rogerses against Home Depot potentially falls

within coverage of the Policy.10               When we analyze the underlying

pleading, we focus on the factual allegations that show the origin

of the damages, rather than the legal theories alleged.11 “The duty

to defend does not depend on what the facts are, or what might be

determined finally by the trier of the facts.                   It depends only on

what       the   facts   are   alleged    to   be.”12    If     the   policy    under

examination        provides    coverage    for   any    claim    asserted      in   the

underlying pleading, the insurer’s duty to defend extends to the

entire action.13

C.     THE VENDOR EXCLUSION

       Federal does not contest that Home Depot is a “vendor” as that

term is used in the Policy.               Instead, Federal’s first line of

defense is that the facts alleged in the Rogerses’ First Amended

       9
       Id. (citing Adamo v. State Farm Lloyds Co., 853 S.W.2d 673
(Tex. App. — Hous. [14th Dist.] 1993, writ denied), cert. denied,
511 U.S. 1053 (1994)).
       10
            See id.
       11
            Ryan, 274 F.3d at 324.
       12
       Argonaut Southwest Ins. Co. v. Maupin, 500 S.W.2d 633, 636
(Tex. 1973).
       13
         St. Paul Guardian Ins. Co. v. Centrum GS Ltd., 283 F.3d 709,
714    (5th Cir. 2002).

                                           7
Petition implicated the Vendor Exclusion provision and, therefore,

alleged only conduct that was excluded under the Policy.

     The Vendor Exclusion provision of the Policy, quoted above,14

precludes coverage for “inspections” that Home Depot “has agreed to

conduct or normally undertakes to make in the usual course of

business.”       Federal    directs    our   attention   to   those   factual

allegations in the Rogerses’ First Amended Petition which state

that Home Depot failed to make inspections, tests, or adjustments

to make their store safe.             By focusing on these allegations,

Federal insists that it owes no duty to defend because Home Depot

is obligated by Texas premises liability law to make reasonable

inspections.15    We are not convinced.

     To start, we agree with the district court’s legal analysis

that Federal has failed to proffer any evidence that Home Depot

ever “agreed to make or normally undertakes to make in the usual

course of business” inspections vis-à-vis the rug display cabinet

or similar installations.16      The Vendor Exclusion is silent about

     14
          See supra p. 4.
     15
       Federal cites to such cases as Rosa v. Buddies Food Store,
518 S.W.2d 534, 536-37 (Tex. 1975) and Wal-Mart Stores, Inc. v.
Gonzalez, 968 S.W.2d 934, 936 (Tex. 1988) to show that, under Texas
law, Home Depot owed a duty to exercise reasonable care to protect
Mrs. Rogers from known or discoverable dangerous conditions in the
store.
     16
          Home Depot, 241 F. Supp. 2d at 708.

                                       8
inspections that may be compelled by law.17                    Furthermore, Federal’s

approach would have us ignore other factual allegations in the

Rogerses’ complaint.           For example, the Rogerses also alleged that

(1) the display cabinet was top-heavy by design; (2) Home Depot

failed properly to secure the display cabinet to the floor or wall;

and    (3)   Home   Depot      failed    to       warn    customers     of   the    display

cabinet’s dangers. Independently, these other allegations —— which

have    nothing     to   do    with     “inspections,          adjustments,        tests   or

servicing” —— have the potential of giving rise to claims that the

Vendor Exclusion simply cannot be read to preclude.                          And, because

Federal must defend Home Depot against the entire action if any one

or more of the Rogerses’ claims are covered, Federal’s appeal to

the law of premises liability is unavailing.

D.     THE “PRODUCT”

       Federal’s second defensive position is that Home Depot is not

entitled to coverage under the Policy unless the Rogerses’ damages

arose from the distribution or sale of Beaulieu’s “products.” And,

advances     Federal,         because    the       display      cabinet      was    neither

manufactured by Beaulieu nor offered for sale by Home Depot, the

cabinet could not be a Beaulieu “product,” and Federal owes no duty

to defend Home Depot in the Rogers litigation.

       The   Policy      defines      “product”          to   include   “any       goods   or

products...manufactured, sold, handled, distributed or disposed of

       17
       We express no opinion on what inspections, if any, would
have satisfied Home Depot’s duty to exercise reasonable care here.

                                              9
by” Beaulieu.      The “products” in question here are the rugs

“manufactured” by Beaulieu, not the cabinet in which they were

displayed.    Yet Federal would have us analyze whether the display

cabinet qualifies as a “product.”     This classic red herring only

confuses the issue.     The question is simply whether Mrs. Rogers’

bodily injury “ar[ose] out of the distribution or sale” of the

rugs.     We have ruled that, when used in an insurance policy, the

words “arising out of” are “broad, general, and comprehensive terms

effecting broad coverage.”18    Thus, we understand these words to

mean “originating from,” “having its origin in,” “growing out of”

or “flowing from.”19    It would be inconsistent, to say the least,

to read     the Policy to say that Mrs. Rogers’ injury did not

originate from or flow from Home Depot’s sale of the Beaulieu

rugs.20   The Rogerses’ damages may not have arisen out of the sale

or distribution of the display cabinet, but they certainly did

arise out of Mrs. Rogers’ shopping for Beaulieu’s rugs at Home

     18
       Am. States Ins. Co. v. Bailey, 133 F.3d 363, 370 (5th Cir.
1998) (quoting Red Ball Motor Freight, Inc. v. Employers Mut. Liab.
Ins. Co., 189 F.2d 374, 378 (5th Cir. 1951)); Jarvis Christian
Coll. v. Nat’l Union Fire Ins. Co., 197 F.3d 742, 747 n.5 (5th Cir.
1999).
     19
       Bailey, 133 F.3d at 370; Jarvis Christian Coll., 197 F.3d
at 747 n.5. See also General Agents Ins. Co. v. Arredondo, 52
S.W.3d 762, 767 (Tex. App. — San Antonio 2001, pet. denied).
     20
       See Old Am. County Mut. Fire Ins. Co. v. Renfrow, 90 S.W.3d
810, 815 (Tex. App. — Fort Worth 2002, no pet.) (“Terms in
contracts are to be given their plain, ordinary meaning unless the
contract shows that particular definitions are used to replace the
ordinary meaning.”).

                                 10
Depot’s store, in which those rugs were displayed for sale in that

cabinet.       Federal’s    contention           on     this   point    approaches

frivolousness.

E.   DISTINCT COVERAGE UNDER THE LIABILITY INSURANCE ENDORSEMENT

     Federal’s    third    point    on    appeal       challenges   the   district

court’s     alternative    holding        that        the   Liability     Insurance

Endorsement extended coverage to Home Depot, separate and apart

from the Vendor Endorsement in the Policy.21                Because we hold that

the Vendor Endorsement requires Federal to defend Home Depot in the

Rogers litigation, we need not reach this alternate basis for

holding Federal responsible.

                             III.    CONCLUSION

     We affirm the district court’s grant of summary judgment in

favor of Home Depot and its denial of Federal’s motion for summary

judgment.

AFFIRMED.

     21
       See Home Depot, 241 F. Supp. 2d at 708-09 (concluding that
“a vendor insured and an AS REQUIRED BY WRITTEN CONTRACT insured
appear to be separate and distinct categories”).

                                         11