Court Opinion

ID: 8439
Source: CourtListenerOpinion
Date Created: 2010-04-25 05:37:13+00
Date Added: 2024-06-11T16:46:20.518727
License: Public Domain

United States Court of Appeals,

                          Fifth Circuit.

                          No. 95-40017.

   Richard TOOPS; Eloisa Toops, individually and as surviving
parents of Jeremy Brian Toops, deceased;     Larry D. Hurst, as
administrator of the estate of Jeremy Brian Toops, deceased;
Thomas William Holm, Plaintiffs-Appellees,

                                v.

   GULF COAST MARINE INC.; Stonewall Surplus Lines Insurance
Company;   Technical Risks, Inc.;    Technical Risks Corporate
Insurance, Defendants,

                               and

United States Fidelity and Guaranty Company, Defendant-Appellant.

UNITED STATES FIDELITY AND GUARANTY COMPANY, Plaintiff-Appellant,

                                v.

  Richard TOOPS, Individually and a/n/f of Jeremy Brian Toops;
Eloisa Toops, Individually and a/n/f of Jeremy Brian Toops; Larry
D. Hurst, Administrator of the Estate of Jeremy Brian Toops,
Deceased; Thomas Holm, Individually and as assignees of Rig Runner
Express Inc.;   Rig Runner Express Inc.;     Eric Allen Davidson,
Defendants-Appellees.

                          Jan. 15, 1996.

Appeals from the United States District Court for the Southern
District of Texas.

Before DAVIS and PARKER, Circuit Judges, and BUNTON*, District
Judge.

     BUNTON, Senior District Judge.

                        FACTUAL BACKGROUND

     Dayton-Scott Equipment Company is a Houston based company that

rents heavy cranes to large contractors and industrial companies

     *
      District Judge of the Western District of Texas, sitting by
designation.

                                1
throughout the United States. In 1990, Union Carbide Chemicals and

Plastic    Company   approached      Dayton-Scott    to   lease    a   ringer

attachment1 for a crane to be used on a construction project at

Union Carbide's Point Comfort plant in Seadrift, Texas.

     The ringer attachment was located on a construction site in

Sulphur, Louisiana and needed to be transported to the Union

Carbide construction site in South Texas.           Dayton-Scott solicited

for transportation service from several shippers and ultimately

awarded the bid to Rig Runner, a licensed intrastate and interstate

common carrier. Rig Runner in turn hired two drivers, Williams and

Davidson, to transport the crane parts from Louisiana to Texas.

Williams and Davidson were independent contractors who owned and

operated their own trucks.

     On the night of August 28, 1990, Jeremy Brian Toops ("Toops")

was riding in a car towed by another car which was driven by Thomas

Holm.     While Toops' car was being towed down Highway 288 near

Angleton in Brazoria County, Texas, it was struck from behind by

the tractor-trailer driven by Davidson.        The accident resulted in

Toops suffering severe injuries and burns from which he later died.

                           PROCEDURAL BACKGROUND

     Toops' parents filed suit in Brazoria County against, inter

alia,   Davidson,    Rig   Runner,    and   Dayton-Scott.         During   the

litigation, it became apparent to Rig Runner that its $750,000.00

insurance policy would be insufficient to cover any potential

    1
     A ringer attachment is installed on a crane to substantially
increase its lifting capacity.

                                      2
liability in the Texas tort suit.        Consequently, Rig Runner and

Davidson demanded that Dayton-Scott's insurers, which included

Appellant United States Fidelity and Guaranty Co. ("USF & G"),

defend them and pay any judgment rendered against them up to policy

limits.     USF & G and the other insurers denied that coverage

existed and refused to defend them or pay any judgment.

     Two jury interrogatories were submitted to the Brazoria County

jury regarding Dayton-Scott's relationship with Rig Runner.           The

first interrogatory asked whether Dayton-Scott and Rig Runner were

engaged in a joint venture to which the jury answered "no."           The

second interrogatory asked whether Rig Runner and Davidson were

agents of Dayton-Scott to which the jury answered "no."            Dayton-

Scott was not found liable, but Davidson and Rig Runner were found

to be negligent and Toops was awarded $12 million in damages.          Rig

Runner paid its policy limits, did not appeal the decision, and in

May of 1994 Davidson and Rig Runner assigned to Toops all causes of

action in contract or torts that they might have against USF & G

and the other insurers.

     Toops once again filed in state court against USF & G and the

other insurers claiming breach of contract and seeking declaratory

judgment under the Texas Declaratory Judgment Act. USF & G removed

the case to federal court and also filed a declaratory judgment.

The District Court granted summary judgment for all of the insurers

except USF & G.      USF & G's motion for summary judgment was denied

and Toops' motion for summary judgment was granted.

     This   entire    appeal   centers   around   the   District   Court's

                                    3
interpretation of USF & G's insurance policy which states in

pertinent part:

     (1) WHO IS AN INSURED

           The following are insureds:

           (a) You for any covered auto.

           (b) Anyone else while using with your permission a
               covered auto you own, hire or borrow except:

           ....

           (c)    Anyone liable for the conduct of an insured
                  specified above but only to the extent of that
                  liability. However, the owner or anyone else from
                  whom you hire or borrow a covered auto is an
                  insured only if that auto is a trailer connected to
                  a covered auto you own.

The District Court found that the coverage of Rig Runner was

expressed in clear and unambiguous language.       The Court then found

that Dayton-Scott "hired" Rig Runner and therefore Rig Runner was

an insured under subsection (1)(b) above.       The Court also rejected

USF & G's argument that subsection (1)(c) provides an exemption by

stating that the exemption was limited to subsection (c) and thus

could not be used to defeat coverage under subsection (b).

     The   United   States   District   Court   ultimately   reduced   the

principal amount of the judgment from $12 to $1 million.        However,

immediately after the order on cross-motions for summary judgment

was filed, USF & G fired its counsel, retained other counsel, and

within 10 days filed a FED.R.CIV.P. 59 motion for new trial.           The

District Court, in another order denied the Rule 59 motion, even

though the brief seemingly argued Fifth Circuit case law directly

on point, which may have mandated a different interpretation from

                                   4
the one the District Court decided.             The District Court stated:

       Nevertheless, the Court takes genuine pause in the face of
       caselaw that presents an entirely new line of analysis from
       what was earlier given to the Court. Having read the cases
       mentioned by Defendant, the Court now believes that, if these
       cases had been presented at the appropriate time, the Court
       might have reached a different conclusion in this matter.2

Toops v. USF & G, 871 F. Supp. 284, 294-95 (S.D.Tex.1994).                  We now

proceed with a review of this appeal.

                                     DISCUSSION

I. McBroome-Bennett Doctrine

        We first address whether the District Court below erred when

it strictly applied the insurance policy at issue against USF & G

and liberally in favor of Rig Runner.             USF & G takes issue with the

fact    that   the   District   Court     refused     to   follow   the   case   of

McBroome-Bennett Plumbing, Inc. v. Villa France, Inc., 515 S.W.2d
32 (Tex.Ct.App.1974).       The McBroome-Bennett doctrine states that

there can be no coverage presumption against an insurer until the

claimant has established that it is an insured under the policy.

Although USF & G failed to argue the McBroome-Bennett doctrine in

its    summary   judgment   motion,       the   District    Court   nevertheless

addressed      the   doctrine   in    a   footnote.        The   McBroome-Bennett

doctrine is only applicable, however, when the insurance policy is

found to be ambiguous.          The Court specifically found that the

policy was unambiguous and therefore refused to apply it.                  Toops,
871 F. Supp. at 292.

        2
       Supreme Court Justice Frankfurter once said, "Wisdom too
often never comes, and so one ought not to reject it merely because
it comes late." Henslee v. Union Planters Nat'l Bank and Trust
Co., 335 U.S. 595, 600, 69 S. Ct. 290, 293, 93 L. Ed. 259 (1949).

                                          5
      USF & G also argues that there was an alternative finding by

the Court that if the policy was ambiguous, then the policy should

be construed strictly against the insurer and liberally against the

insured.     It is arguable that this was an alternative holding by

the Court;     however, even if it was an alternative holding, the

District Court properly excluded any analysis under the McBroome-

Bennett doctrine.        The doctrine has been drawn into question by

courts both in Texas and across the nation.               "Neither the Texas

Supreme Court nor any other Texas appellate court has ever endorsed

this specific provision of McBroome-Bennett, which itself relied on

no Texas or other case authority for its pronouncement.                Instead,

it pointed to recent statements of then—President Gerald Ford and

a comment in 44 C.J.S. Insurance ... itself almost twenty years old

at the time."      Id. at 291 n. 4.           The law in the Fifth Circuit

expressed in the District Court case of Adams v. John Hancock

Mutual Life Ins. Co., states:

     Under Texas law, the words and clauses of insurance contracts
     are strictly construed against the insurer.      If a word or
     clause has more than one meaning, then the meaning favoring
     the insured must be applied. If the clause may be interpreted
     as a limiting term or as an exclusionary clause, the insured's
     reasonable construction of the clause must be adopted, even if
     the insurer's construction is more reasonable.

797 F. Supp. 563, 567 (W.D.Tex.1992) (internal citation omitted).

Therefore,    it   was   proper   for   the    District   Court   to   strictly

construe the insurance policy against USF & G.

II. Motion for New Trial

      We next address whether or not to analyze the District

Court's denial of USF & G's motion for new trial pursuant to

                                        6
FED.R.CIV.P. 59 on the grounds that trial counsel did not present

timely dispositive case law supporting USF & G's prior motion for

summary judgment.   Rather than undertake this analysis, the Fifth

Circuit advises that such endeavor is wholly unproductive because,

"[o]rdinarily, a district court's decision not to grant a new trial

under Rule 59(a) is not appealable."     Youmans v. Simon, 791 F.2d
341, 349 (5th Cir.1986).    An appeal from a denial of a new trial

"merely restates the attack on the merits of the final judgment.

It is from the final judgment that the appeal should be taken."

Government Financial Services v. Peyton Place, 62 F.3d 767, 774

(5th Cir.1995) (quoting Youmans, 791 F.2d at 349).         Thus, we

proceed to analyze the final judgment in this matter rather than

the procedural methodology of Rule 59.

                         STANDARD OF REVIEW

       The Court of Appeals reviews a District Court's grant of

summary judgment de novo and in the light most favorable to USF &

G.   Thomas v. Price, 975 F.2d 231, 235 (5th Cir.1992);   LeJeune v.

Shell Oil Co., 950 F.2d 267, 268 (5th Cir.1992).   Toops is required

to demonstrate that there are no genuine issues of material fact

and that he is entitled to judgment as a matter of law.    Anderson

v. Liberty Lobby, Inc., 477 U.S. 242, 247-49, 106 S. Ct. 2505, 2509-

11, 91 L. Ed. 2d 202 (1986);      FED.R.CIV.P. 56(c).   Toops is also

required to establish all of the essential elements of his claim.

Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir.1986).      If

Toops meets the initial burden, the burden then shifts to USF & G

to disprove the claim.     Celotex Corp. v. Catrett, 477 U.S. 317,

                                 7
322, 106 S. Ct. 2548, 2552, 91 L. Ed. 2d 265 (1986).

III. Hired Auto Clause

      According   to   the   insurance   policy   at   issue,   Toops   was

required to prove that Dayton-Scott not only hired a "covered

auto," in this case the tractor trailers driven by Williams and

Davidson, but that the drivers of the hired autos were under the

control of Dayton-Scott.     The facts show that Dayton-Scott hired a

licensed common carrier to provide transportation services and

relied on the carrier to select and arrange for vehicles and

drivers.   Thus, Toops never made the connection between Rig Runner

(the entity "hired") and Williams/Davidson (the drivers who drove

the "auto").    Without such connection, the policy can not be

enforced and USF & G can not be held liable for coverage.

      Moreover, the facts show that Davidson was not even a Rig

Runner employee driving a Rig Runner truck, but was an independent

contractor who owned his own truck and was paid on commission.          The

District Court failed to make this distinction between hiring a

company that provides transportation and hiring a truck.         "[F]or a

vehicle to constitute a hired automobile, there must be a separate

contract by which the vehicle is hired or leased to the named

insured for his exclusive use or control."        Sprow v. Hartford Ins.

Co., 594 F.2d 418, 422 (5th Cir.1979);             see also Russom v.

Insurance Co. of North America, 421 F.2d 985, 993 (6th Cir.1970)

("Where there is a separate contract for hiring or leasing a

vehicle in addition to an agreement to haul a particular load,

courts have held that the vehicle becomes a "hired automobile.' ").

                                   8
It is a further requirement of Sprow that in order for a vehicle to

constitute a hired automobile it must be under the named insured's

exclusive use or control. 594 F.2d at 422;    see also Liberty

Mutual Ins. Co. v. American Employers Ins. Co., 556 S.W.2d 242,

244-45 (Tex.1977) (stating in a "own, hire, or borrow" provision,

where the named insured did not have possession or control of the

tractor-trailer rig, the rig was not covered).

     The Fifth Circuit has also addressed the breadth of "hired

auto" clauses and provided inquiries to determine whether a truck

was under the possession or control of the insured.   In Johnson v.

Royal Indem. Co., 206 F.2d 561 (5th Cir.1953), the Court made a

distinction between a hired auto and an independent contractor,

stating that the party hiring the truck:

1) Did not furnish gas or oil for the trucks and did not otherwise
     maintain the trucks;

2) Did not require trucks to be a particular size or require a
     certain number of loads per day;

3) Did not select individual truck drivers;

4) Could not fire the truck drivers;

5) Was "interested only in the results" of transporting from Point
     A to Point B; and

6) Did not assume "control" of the independent contractor's truck
     or driver by directly loading and unloading operations.

Id. at 563-64;   see also Chicago Ins. Co. v. Farm Bureau Mutual

Ins. Co., 929 F.2d 372, 373-74 (8th Cir.1991) (applying Texas law

and making similar findings).

     Lastly, numerous courts have held that hiring an independent

contractor will not create insurance coverage under a "hired auto"

                                9
clause.     Chicago Ins. Co., 929 F.2d at 374-75;      Transportation

Indem. Co. v. Liberty Mut. Ins. Co., 620 F.2d 1368, 1371-72 (9th

Cir.1980);     Royal Indem. Co., 206 F.2d at 564-65;         American

Casualty Co. v. Denmark Foods, 224 F.2d 461, 463-64 (4th Cir.1955)

(truck used under an independent contract is not a hired auto).    As

a consequence, Toops never proved that Dayton-Scott separately

hired the truck that Davidson was driving when he struck Toops'

car, or that either Davidson or Rig Runner was using the truck with

Dayton-Scott's permission;   and lastly, Toops never disproved that

Dayton-Scott hired the services of an independent contractor.

Toops therefore failed to satisfy his burden of proof for summary

judgment.    Further evidence of this failure can be found in USF &

G's argument of issue preclusion.

IV. Issue Preclusion

        In the state court jury trial that preceded the federal

action, a jury was asked whether Rig Runner and Dayton-Scott were

engaged in a joint enterprise.        The jury was instructed that a

"joint enterprise" exists if there is:

1) An agreement, either express or implied, with respect to the
     enterprise or endeavor;

2) A common purpose;

3) A common business or pecuniary interest;     and

4) An equal right to direct and control the enterprise.

(emphasis supplied).    The jury answered "no."    The jury was next

asked whether Rig Runner and its driver were agents of Dayton-Scott

at the time of the collision with Toops.      The jury was instructed

that:

                                 10
     An AGENT, as applied to the factual scenario of this case, is
     a person in the service of another with the understanding,
     express or implied, that such other person has a right of
     control as to the details of performance during the trip,
     which details you have found caused the injury.

(emphasis supplied).      Once again the jury answered "no."

     When presented with the question of issue preclusion, the

District   Court    in   its    summary       judgment     order   dismissed     such

argument by stating, "[w]hether or not Rig Runner is found to be an

insured under USF & G's policy with Dayton-Scott is a wholly

independent issue from the question of whether Rig Runner was

involved in an agency or joint venture relationship with Dayton-

Scott."    Toops, 871 F. Supp. at 290.           Under Texas law, the doctrine

of issue preclusion bars relitigation of any ultimate issue of fact

previously litigated and essential to the ultimate judgment in the

prior suit, regardless of whether the second suit is based on the

same cause of action.          Daniels v. Equitable Life Assur. Soc. of

U.S., 35 F.3d 210, 213 (5th Cir.1994).                      Moreover, "[o]nce an

essential issue is actually litigated and determined, that issue is

conclusive in a subsequent action between the same parties, or

persons in privity with them, regardless of whether the second suit

is based on the same cause of action...."                Id. (citing Van Dyke v.

Boswell,    O'Toole,     Davis    &   Pickering,           697 S.W.2d 381,    384

(Tex.1985));      Wilhite v. Adams, 640 S.W.2d 875, 876 (Tex.1982).                It

is therefore clear that the jury interrogatories and answers were

squarely on point in showing the lack of an essential element by

Toops in    the    present     appeal.        That   is,    whether   Dayton-Scott

exercised control over Rig Runner sufficient enough to make Rig

                                         11
Runner an insured under the USF & G policy.                   The jury in the prior

case answered "no," and the District Court's dismissal of issue

preclusion is therefore incorrect.

V. District Court's Interpretation of Hired Auto Clause

        We finally address whether the District Court erred when it

adopted the construction of the insurance policy that Rig Runner

was covered by the policy.            USF & G argues that the District Court

unreasonably interpreted the insurance policy to cover Rig Runner.

In   cases   dealing     with    insurance       policies,       certain    rules    of

construction may be used to interpret the policy;                    however, if an

insurance     policy's      provisions         are     expressed     in    clear    and

unambiguous      language,      the    court     may    not    use   the    rules    of

construction.      Adams, 797 F. Supp. at 566.                  The District Court

found, as a matter of law, that the provisions of (1)(a), (b) and

(c) of the insurance policy were unambiguous on their face, and

therefore there was no need to apply the rules of construction.

Toops, 871 F. Supp. at 292.

      USF & G argues that based on public policy, no reasonable

corporation would pay premiums to insure third-parties against

risks for which the corporation could not be liable.                  This argument

is somewhat correct, although a plain reading of this allegedly

unambiguous insurance policy that USF & G wrote, seems to say the

contrary. The policy explicitly sets forth "who is an insured" and

under   (1)(b)    states:        "[a]nyone       else    while     using   with    your

permission a covered auto you own, hire or borrow ..." Such a

reading, of course, is constrained by the case law in Sprow which

                                          12
requires a showing of a separate contract and that the hired

automobile was under the named insured's exclusive use or control.
594 F.2d at 422.        Therefore, USF & G's argument is correct when

taken in conjunction with Sprow.

                                CONCLUSION

     Based upon the discussion above, we hold the Sprow case to be

controlling.      The    District   Court   erroneously   granted   summary

judgment for the Appellees and denied summary judgment for the

Appellant.     The essential elements required by Sprow are lacking

and therefore we REVERSE the order on cross-motions for summary

judgment and RENDER judgment for Appellant USF & G.

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