Court Opinion

ID: 9963988
Source: CourtListenerOpinion
Date Created: 2024-04-26 18:00:55.876349+00
Date Added: 2024-06-11T08:25:07.498082
License: Public Domain

Case: 23-50336      Document: 62-1     Page: 1   Date Filed: 04/26/2024

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

                             No. 23-50336
                                                                     FILED
                                                                 April 26, 2024
                           ____________
                                                                Lyle W. Cayce
Kinsale Insurance Company,                                           Clerk

                                                     Plaintiff—Appellant,

                                 versus

Flyin’ Diesel Performance & Offroad, L.L.C.; Ross M.
Dunagan, doing business as Airport Race Wars 2; Karla
Martinez, Individually and as husband and wife and as the natural parents
and representative of the Estate of Santiago Martinez;
Francisco Gerardo Recio Palacios, Individually and on behalf of
the Estate of Rebecca Cedillo and their Surviving Natural Children; Delia
Jones, Individually and as Next Friend of J.D.J; Abel Martinez, Jr.,
Individually and as husband and wife and as the natural parents and
representative of the Estate of Santiago Martinez; Chance
Jones, Individually and as Representative of The Estate of D.I.T.J.;
Mary Kate Walls, Individually and as Next Friend of G.M.J.,

                                       Defendants—Appellees.
              ______________________________

              Appeal from the United States District Court
                   for the Western District of Texas
                        USDC No. 5:22-CV-48
              ______________________________

Before Higginbotham, Smith, and Higginson, Circuit Judges.
Jerry E. Smith, Circuit Judge:
      A car careened off the raceway and collided with spectators at Race
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                                   No. 23-50336

Wars 2, a one-day amateur “no prep” drag racing event. Injured spectators,
on their own behalf and on behalf of the estates of their deceased family
members, sued Flyin’ Diesel Performance & Offroad, L.L.C., the event’s
sponsor and organizer—which turned to its insurer, Kinsale Insurance Com-
pany, for legal defense. The parties dispute whether Kinsale owes a duty to
defend.
       The district court, after finding the commercial general liability insur-
ance policy ambiguous, declared that Kinsale owed Flyin’ Diesel a duty to
defend. That was error. We reverse Flyin’ Diesel’s partial summary judg-
ment and remand with directions to grant summary judgment to Kinsale.

                                        I.
A.     The Insurance Policy
       In preparation for Race Wars 2, Flyin’ Diesel purchased a commercial
general liability insurance policy from Kinsale (“CGL Policy”). 1 The CGL
Policy is comprised of three parts: (1) a commercial general liability declara-
tion (“CGL Declaration”); (2) a commercial general liability coverage form
(“CGL Form”); and (3) various endorsements (“CGL Endorsements”). 2
       Section I of the CGL Form defines “Coverage A,” which addresses
bodily injury and property damage liability. That, in turn, contains an “Insur-
ing Agreement” stating that Kinsale
       will pay those sums that the insured becomes legally obligated
       to pay as damages because of “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
       _____________________
       1
         For readability, UPPERCASE text from the CGL Policy has been reproduced
in sentence case throughout the opinion.
       2
          There are sixty documents referenced in the “Exclusions and Endorsements”
section of the CGL Declaration.

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                                     No. 23-50336

        those damages. However, we will have no duty to defend the
        insured against any “suit” seeking damages for “bodily
        injury” or “property damage” to which this insurance does not
        apply.

        Each of the CGL Endorsements contains a header that states that
“[t]his endorsement changes the policy. Please read it carefully.” Addition-
ally, at the end of each endorsement is the following statement: “All other
terms and conditions of the policy remain unchanged” (“Footer
Statement”).
        Of those CGL Endorsements, we highlight two:
        The first is the “Coverage for Designated Events – Commercial Gen-
eral Liability” endorsement (“CDE Endorsement”). This endorsement
“modifies insurance provided under the . . . commercial general liability
coverage.” It states that “[t]his insurance applies to ‘bodily injury’, ‘prop-
erty damage’ or ‘personal and advertising injury’ arising out of the owner-
ship, maintenance or use of premises for the designated event(s) in the above
Schedule,[ 3] including any property located on these premises during the
designated event(s).”
       The second is the “Absolute Exclusion – Motorized Vehicles” en-
dorsement (“MV Endorsement”). Like the CDE Endorsement, the MV
Endorsement also “modifies insurance provided under the . . . commercial
general liability coverage.”
       The MV Endorsement excludes coverage for “any claim or ‘suit’ for
‘bodily injury,’ ‘property damage’ or ‘personal and advertising injury’ aris-

       _____________________
        3
          “Schedule” refers to a table that lists the “Name of Event,” “Dates of Event,”
and “Location(s) of Event” as “Race Wars 2,” “10/23/2021,” and “1994 Airport Loop,
Kerrville, TX 78028,” respectively.

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                                    No. 23-50336

ing directly or indirectly out of, related to, or, in any way involving the
operation, maintenance, use, entrustment to others, or ‘loading or unload-
ing’ of any motorized vehicle of any type.” Additionally, the MV Endorse-
ment stipulates that
       [t]his exclusion applies to any claim or “suit” regardless of
       whether any motorized vehicle is the initial precipitating cause
       or is in any way a cause, and regardless of whether any other
       actual or alleged cause contributed concurrently, proximately,
       or in any sequence, including whether any actual or alleged
       “bodily injury”, “property damage” or “personal and adver-
       tising injury” arises out of a chain of events that involves any
       motorized vehicle. 4

B.     Collision and Underlying Litigation
       During Race Wars 2, an automobile driven by a participant departed
from the raceway and careened into a spectator area and collided with spec-
tators, seriously injuring some and killing others. Some of the injured parties
(“Underlying Plaintiffs”) sued Flyin’ Diesel in Texas state court (“Under-
lying Litigation”). Flyin’ Diesel tendered the Underlying Litigation to Kin-
sale, and Kinsale agreed to defend Flyin’ Diesel subject to a complete reser-
vation of its rights.

C.     Procedural History
       Kinsale sued in federal district court seeking a declaration of its rights
under the policy. Specifically, it asked the court to declare that it has no
obligation to defend or indemnify Flyin’ Diesel in the Underlying Lawsuit.
Kinsale and Flyin’ Diesel filed cross-motions for summary judgment. The
       _____________________
       4
          The MV Endorsement defines a “motorized vehicle” as “‘autos’, motorized
bicycles, electric bicycles, All-Terrain Vehicles (ATVs), Utility Task Vehicles (UTVs);
Golf carts, club carts/cars; ‘Mobile equipment’; and Mopeds, motor scooters, electric
scooters.”

                                          4
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                                       No. 23-50336

district court, after finding the CGL Policy ambiguous, declared that Kinsale
owed Flyin’ Diesel a duty to defend in the Underlying Litigation.
Accordingly, the court granted in part and denied in part Flyin’ Diesel’s
motion for summary judgment 5 and denied Kinsale’s motion. Kinsale
appeals.

                                            II.
A.      Texas Insurance Law
        Kinsale’s declaratory action arises under our diversity jurisdiction, see
28 U.S.C. § 1332(a)(1), and Texas law provides the applicable rule of deci-
sion, see 28 U.S.C. § 1652.
        Under Texas law, “[i]nsurance policies are controlled by rules of
interpretation and construction which are applicable to contracts generally.”
Nat’l Union Fire Ins. Co. of Pittsburgh v. CBI Indus., Inc., 907 S.W.2d 517, 520
(Tex. 1995) (per curiam) (citations omitted). “The goal of contract construc-
tion is to ascertain the parties’ intent as expressed in the language of the
agreement.” Rosetta Res. Operating, LP v. Martin, 645 S.W.3d 212, 218 (Tex.
2022). 6 To that end, we must “first determine whether it is possible to
enforce the contract as written.” Mosaic Baybrook One, L.P. v. Simien,
674 S.W.3d 234, 257 (Tex. 2023) (cleaned up). Thus, the “analysis begins
with the contract’s express language.” Burlington Res. Oil & Gas Co. v. Tex.
Crude Energy, LLC, 573 S.W.3d 198, 203 (Tex. 2019) (citation omitted).
        Two interpretative principles, routinely applied by Texas state courts,
        _____________________
        5
         The district court did not make any declaration as to Kinsale’s duty to indemnify
Flyin’ Diesel on the ground that the Underlying Lawsuit was still pending.
        6
          But “if there are repugnant conditions in a policy, a court must interpret the
contract in favor of the insured to prevent forfeiture, defeat, or diminution of coverage if
possible.” INA of Tex. v. Leonard, 714 S.W.2d 414, 417 (Tex. App.—San Antonio 1986,
writ ref’d n.r.e.) (cleaned up).

                                             5
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                                        No. 23-50336

guide our analysis of a contract’s express language: First, a contract’s terms
must be given “their plain, ordinary, and generally accepted meaning unless
the instrument shows that the parties used them in a technical or different
sense.” Id. (internal quotation marks and citation omitted). Second, we must
“examine and consider the entire writing in an effort to harmonize and give
effect to all the provisions of the contract so that none will be rendered
meaningless.” Id. (internal quotation marks and citation omitted).
         If its express language “lends itself to a clear and definite legal mean-
ing, the contract is not ambiguous and will be construed as a matter of law.”
Mosaic, 674 S.W.3d at 257 (internal quotation marks and citation omitted).
But if the “language is subject to two or more reasonable interpretations after
applying the pertinent rules of construction, it is ambiguous.” Id. (cleaned
up). 7
         Texas courts construe the meaning of an ambiguous insurance con-
tract in favor of the insured. See Nat’l Union Fire Ins. Co. of Pittsburgh v.
Hudson Energy Co., 811 S.W.2d 552, 555 (Tex. 1991) (citations omitted). “In
particular, exceptions or limitations on liability are strictly construed against
the insurer and in favor of the insured.” Id. (citations omitted). Accordingly,
“we must adopt the construction urged by the insured as long as that con-
struction is not unreasonable, even if the construction urged by the insurer
appears to be more reasonable or a more accurate reflection of the parties’
intent.” Evanston Ins. Co. v. ATOFINA Petrochems., Inc., 256 S.W.3d 660,
668 (Tex. 2008) (cleaned up).

         _____________________
         7
           “Concluding that a legal instrument is insolubly ambiguous must always come
after a court has exhausted all the traditional tools of interpretation and still cannot reach a
definitive conclusion about the meaning conveyed by the text.” U.S. Polyco, Inc. v. Tex.
Cent. Bus. Lines Corp., 681 S.W.3d 383, 389 n.1 (Tex. 2023) (emphasis in original).

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                                      No. 23-50336

B.      The CGL Policy Is Not Ambiguous
        According to Flyin’ Diesel, the CGL Policy is ambiguous because
“[t]he presence of [the Footer Statement] in multiple endorsements creates
a conflict amongst the endorsements and, therefore, an ambiguity in the
policy.” Specifically, it claims that any endorsement containing the Footer
Statement necessarily “ignores and denies the existence of the other exclu-
sionary endorsements.” By Flyin’ Diesel’s reasoning, if there are two
endorsements—both of which contain the Footer Statement—one of the
endorsements “[must be] incorrect” because “[t]hey can’t both truthfully
state (a) that they change the policy; and (b) that all other terms of the policy
remain the same.” 8
        Kinsale disagrees and contends that “each endorsement must be read
in conjunction with all other endorsements” such that each endorsement
“provid[es] a condition to coverage provided under the CGL Form.” Thus,
“each endorsement” functions “as a separate, independent potential limita-
tion on coverage.”
        Flyin’ Diesel’s construction of the Footer Statement is unreasonable,
for it assumes that the CGL Endorsements modify a pre-existing construc-
tion of the CGL Policy. That assumption is erroneous for two reasons:
        First, Flyin’ Diesel misinterprets the term “policy” as used in the
Footer Statement. Per Flyin’ Diesel’s reasoning, the CGL Form is the policy
until the endorsements are interpreted and construed. 9 Then, once the first
        _____________________
        8
         The district court largely adopted Flyin’ Diesel’s reasoning: “[I]f simultaneously
created endorsements each state that all other terms and conditions of the policy remain
unchanged, then an added coverage provision would be unchanged by an added exclu-
sionary endorsement.” Kinsale Ins. Co. v. Flyin’ Diesel Performance & Offroad, LLC,
No. 5:22-CV-0048, 2023 WL 2756988, at *11 (W.D. Tex. Mar. 31, 2023).
        9
            Indeed, Flyin’ Diesel’s briefing repeatedly describes the endorsements as

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                                    No. 23-50336

endorsement is interpreted, Flyin’ Diesel would construe the “policy” with
that endorsement and the CGL Form, and so on.
       But that cannot be, for “policy” is defined in the CGL Declaration as
“[t]hese declarations, together with the common policy conditions and cov-
erage form(s) and any endorsement(s).” The CGL Form is one component of
the CGL Policy—it is not the entire CGL Policy. None of the CGL Endorse-
ments modifies the “policy’s” terms and conditions—for those endorse-
ments already comprise the “terms and conditions of the policy.” Conse-
quently, Flyin’ Diesel’s reasoning fails under the express terms of the
contract.
       Second, and more fundamentally, Flyin’ Diesel’s assumption violates
Texas’s “long-established rule that no one phrase, sentence, or section of a
contract should be isolated from its setting and considered apart from the
other provisions.” Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 134 (Tex.
1994) (cleaned up).
       Under its piecemeal approach to interpretation and construction,
Flyin’ Diesel fails to consider each part of the CGL Policy “with reference to
the whole instrument as well as with reference to every other clause.”
Wynnewood State Bank v. Embrey, 451 S.W.2d 930, 932 (Tex. App.—Dallas
1970, writ ref’d n.r.e.) (cleaned up). Flyin’ Diesel therefore “incorrectly
g[ives] priority to a single section of the policy instead of considering the
entire policy in its analysis.” Gastar Expl. Ltd. v. U.S. Specialty Ins. Co.,
412 S.W.3d 577, 588 (Tex. App.—Houston [14th Dist.] 2013, pet. denied).

                                        III.
       Contrary to Flyin’ Diesel’s approach, we must construe every part of

       _____________________
“chang[ing] the policy.”

                                         8
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                                       No. 23-50336

the CGL Policy—the CGL Declaration, the CGL Form, and the CGL
Endorsements—simultaneously.              So construed, the CGL Policy is not
ambiguous.
        Begin by considering the relationship between the CGL Form and the
CGL Endorsements. Generalia specialibus non derogant. Given that the CGL
Form provides general statements regarding coverage, a CGL Endorse-
ment’s more specific statement regarding the same will control where the
two conflict.
        Take, for example, the CDE Endorsement and MV Endorsement:
The CDE Endorsement qualifies coverage for three defined terms—“bodily
injury,” “property damage,” and “personal and advertising injury”—to
those “arising out of the ownership, maintenance or use of premises for the
designated event(s) in the above Schedule.” Designated events are identified
in the Schedule by name, date, and location. The CDE Endorsement’s cov-
erage is a subset of the CGL Form’s, so the two provisions potentially con-
flict. In the event of a conflict, though, the CDE Endorsement controls
because it defines the scope of coverage with greater specificity. 10
        Same for the MV Endorsement. Its language excludes coverage for
one particular cause of “bodily injury,” “property damage,” and “personal
and advertising injury”—namely, motorized vehicles. That specific exclu-
sion controls over the CGL Form where a conflict arises between the two
provisions.
        As the CDE Endorsement and MV Endorsement illustrate, the CGL
Endorsements modify express subsets of provisions in the CGL Form. They

        _____________________
        10
           See Forbau, 876 S.W.2d at 133–34 (“[W]hen a contract provision makes a general
statement of coverage, and another provision specifically states the time limit for such cov-
erage, the more specific provision will control.”) (citation omitted)).

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                                      No. 23-50336

do not, however, expressly purport to modify the CGL Declaration, other
provisions in the CGL Form, or other CGL Endorsements. So, relative to
the CGL Form, each of the CGL Endorsements addresses a narrower set of
provisions in greater detail.
        Given that structural context, the Footer Statement is best under-
stood as the express invocation of the negative-implication canon. It merely
states what is usually implied: That the modifications expressed in a given
CGL Endorsement are the complete expression of all the modifications in
that endorsement. In other words, the Footer Statement clarifies that an
endorsement does only what it says. 11
        Only that interpretation of the Footer Statement allows us to “give
effect to all the provisions of the contract so that none will be rendered mean-
ingless.” Burlington, 573 S.W.3d at 203 (internal quotation marks and cita-
tion omitted). So understood, the CDE Endorsement’s Footer Statement
can co-exist with the other CGL Endorsements in the CGL Policy. It is,
therefore, the only reasonable interpretation.

                                           IV.
        But assume, arguendo, that the CGL Policy is ambiguous. Even so, it
does not necessarily follow that Kinsale owes a duty to defend. That is
because Flyin’ Diesel must still offer a reasonable construction of the CGL
Policy that both “resolve[s] the uncertainty” it previously identified 12 and
        _____________________
        11
           Nor would that interpretation render every Footer Statement in the CGL Policy
meaningless surplusage. Context affects the strength of the negative-implication canon.
The Footer Statement, by stipulating the canon’s applicability, eliminates a step in the
inferential process. See Antonin Scalia & Bryan A. Garner, Reading Law:
The Interpretation of Legal Texts 107–11 (2012).
        12
         Hudson Energy, 811 S.W.2d at 555 (citations omitted); see also ATOFINA,
256 S.W.3d at 668 (adopting insured’s construction of exclusionary clause “as long as that

                                           10
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                                       No. 23-50336

covers the facts alleged in the Underlying Litigation. 13
        To that end, Flyin’ Diesel offers two alternativee constructions of the
policy: Its first construes the CDE Endorsement to “add[] coverage to the
main body of the policy for, among other things, ‘bodily injury’ arising out of
the Race Wars 2 event.” Its second construes that same endorsement
“merely [to] describe[] the Special Event that the policy was purchased to
cover as described in the policy declarations.”
        Both proffered constructions eliminate all but one of the CGL
Endorsements from the CGL Policy. Plainly, neither is a reasonable interpre-
tation of the CGL Policy. Rendering large swaths of the contractual language
“meaningless is, of course, an impermissible interpretation.” S. Farm Bur-
eau Cas. Ins. Co. v. Adams, 570 S.W.2d 567, 571 (Tex. Civ. App.—Corpus
Christi 1978, writ ref’d n.r.e.) (citing Liberty Mut. Ins. Co. v. Am. Emps. Ins.
Co., 556 S.W.2d 242 (Tex. 1977)) (cleaned up).
        So, neither of Flyin’ Diesel’s proffered constructions is reasonable.
Consequently, neither can be adopted as the controlling expression of the
parties’ intent—even if we assume, arguendo, that the CGL Policy is ambig-
uous. See ATOFINA, 256 S.W.3d at 668.

                                            V.
        The express language of the CGL Policy, when properly interpreted
and construed, “lends itself to a clear and definite legal meaning.” Mosaic,
674 S.W.3d at 257 (cleaned up). Consequently, “the contract is not ambigu-
ous and will be construed as a matter of law.” Id. (internal quotation marks

        _____________________
construction is not unreasonable” (internal quotation marks and citation omitted)).
        13
          See Liberty Mut. Fire Ins. Co. v. Copart of Conn., Inc., 75 F.4th 522, 528–29 (5th
Cir. 2023).

                                            11
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                                       No. 23-50336

and citation omitted).
        Under Texas’s eight-corners rule, “an insurer is not legally required
to defend a suit against its insured” if the pleadings “do not allege facts
within the scope of coverage.”               Am. Physicians Ins. Exch. v. Garcia,
876 S.W.2d 842, 848 (Tex. 1994) (cleaned up).
        Neither Kinsale nor Flyin’ Diesel disputes that the Underlying Plain-
tiffs allege that their injuries resulted from the collision. 14 That means the
facts pled in the Underlying Litigation fall within the exclusions defined in
the MV Endorsement, which states that the CGL Policy “does not apply to
any claim or ‘suit’ . . . arising directly or indirectly out of . . . the operation . . .
of any motorized vehicle of any type.” The CGL Policy does not cover the
Underlying Plaintiffs’ claims. Consequently, Kinsale has no duty to defend
because the Underlying Lawsuit does not “allege[] and seek[] damages for an
event potentially covered by the policy.” D.R. Horton–Tex., Ltd. v. Markel
Int’l Ins. Co., 300 S.W.3d 740, 743 (Tex. 2009) (internal quotation marks and
citation omitted).

                                             VI.
        Finally, Flyin’ Diesel asserts that the CGL Policy is illusory because
“[t]he litany of exclusions . . . eliminate all coverage for potential liability to
the defendants arising from the ‘Race Wars 2’ event.”
        Flyin’ Diesel first takes aim at the “Exclusion – Athletic Participants”
endorsement (“AP Endorsement”). That endorsement, it claims, “elimin-
ate[s] any coverage for anything ‘related to’ [Race Wars 2] or anything that

        _____________________
        14
          Indeed, Flyin’ Diesel readily admits that the MV Endorsement “preclude[s]
coverage for the injuries suffered by the Underlying Plaintiffs, as all such injuries occurred
when a motorized vehicle crashed into a spectator area.”

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                                  No. 23-50336

‘arises out of a chain of events that includes’ the Race Wars 2 event.”
       Kinsale disagrees, averring that the AP Endorsement excludes cover-
age only for injuries arising from, related to, or involving the “‘preparation,
practice or training for or participation in’ Race Wars 2.” Since “spectators
are not ‘preparing, practicing or training’ for Race Wars 2” or “participating
in the Race Wars 2,” Kinsale avers that the AP Endorsement does not
eliminate all coverage.
       We agree with Kinsale. The AP Endorsement, standing alone, does
not render the policy illusory. Texas courts are unlikely to deem an insurance
policy illusory where that policy “will provide coverage for other claims.”
Balfour Beatty Constr., L.L.C. v. Liberty Mut. Fire Ins. Co., 968 F.3d 504, 515
(5th Cir. 2020) (cleaned up). The ordinary meaning of the AP Endorsement
does not exclude from coverage spectators who merely attend—and do not
participate in—Race Wars 2.
       Flyin’ Diesel then asserts that the combination of CGL Endorsements
renders the CGL Policy illusory. Specifically, Flyin’ Diesel points to the
combination of the AP Endorsement, the MV Endorsement, and the
endorsements entitled “Injury to Volunteers”; “Absolute Auto, Aircraft and
Watercraft”; “Seating, Grandstands and Bleachers”; and “Traffic
Control.”
       Flyin’ Diesel’s assertion is incorrect. Again, those endorsements do
not appear to exclude coverage for all liability that could arise from Race
Wars 2. For example, the policy still appears to cover spectators who slip
and fall or who get food poisoning. Accordingly, there remain “various
circumstances under which [the policy] would provide coverage,” so the pol-
icy is not illusory. Balfour Beatty Constr., 968 F.3d at 515.
       Last, Flyin’ Diesel claims that it purchased the policy for the purpose
of “provid[ing] coverage for liability arising from Race Wars 2.” But “[a]n

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                                       No. 23-50336

insurance policy is not illusory merely because it does not provide coverage
for a claim the policyholder thought it would cover.” Balfour Beatty Constr.,
968 F.3d at 515 (citation omitted). Texas courts “ascertain the true inten-
tions of the parties as expressed in the writing itself,” Burlington, 573 S.W.3d
at 203 (cleaned up), so Flyin’ Diesel’s subjective expectations are of no
moment. 15

                                         *****
        In summary, the CGL Policy unambiguously excludes the Underlying
Plaintiffs’ claims from coverage. Kinsale is not obligated to defend Flyin’
Diesel in the Underlying Litigation.
        The partial summary judgment for Flyin’ Diesel is REVERSED.
The case is REMANDED with direction to grant summary judgment to
Kinsale.

        _____________________
        15
          “Objective manifestations of intent control, not what one side or the other alleges
they intended to say but did not.” URI, Inc. v. Kleberg Cnty., 543 S.W.3d 755, 763–64 (Tex.
2018) (cleaned up).

                                             14