Opinion
3-03-CV-2322-AH.
September 29, 2004
MEMORANDUM OPINION AND ORDER
Pursuant to the written consents of the parties and the District Court's order of transfer filed on January 9, 2004, in accordance with the provisions of 28 U.S.C. § 636(c), came on to be considered EMCASCO Insurance Co. (EMCASCO)'s Motion for Summary Judgment filed on July 2, 2004, and American International Speciality Lines Insurance Co. (AISLIC)'s Motion for Summary Judgment filed on the same date, and the court finds and orders as follows:
The court has also reviewed and considered the parties' responses, replies and their respective appendices filed with reference to the summary judgment motions.
The parties each seek summary judgment on the claims asserted by Plaintiff, EMCASCO, for (1) recovery of its attorney's fees in the amount of $2,175.92 and (2) recovery of $350,000.00 representing the amount for which EMCASCO settled an underlying lawsuit brought against the parties' mutual insured, Wilson-Riley, Inc. (Wilson-Riley) and for which EMCASCO seeks indemnification.
Summary judgment is appropriate when the pleadings and evidence on file show that no genuine issue of fact exists as to any material fact. The threshold inquiry is "whether . . . there are any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251, 106 S.Ct. 2505 (1986).
In the present case the parties have stipulated many of the relevant facts, and in other instances, discussed infra, the court finds an absence of genuine issues of fact, i.e. a reasonable finder of fact could not find facts in favor of the opponent of a summary judgment motion.
Statement of the Case: At around 4 a.m. on the morning of February 15, 2001, a vehicle driven by Jaime Langston was involved in a one-vehicle accident in which Ms. Langston's vehicle left the roadway and slammed into a tree (EMCASCO's Appendix at 97-98). Although Ms. Langston sustained only relatively minor injuries, her infant son, who was a passenger, died in the accident.
It was determined that the accident occurred as a result of clay, mud and sand debris on the public roadway located in the immediate vicinity of the place where Ms. Langston lost control of her vehicle. The debris was on the portion of the roadway which was adjacent to a sand pit excavation site owned by SLS Management Corp. (SLS) from which vehicles owned by Wilson-Riley were removing clay and sand. Heavy rains had fallen where the excavation pit was located for several days prior to and on the date of the accident. The operations of Wilson-Riley's vehicles had ceased at the excavation site at least seventeen hours before the vehicular accident.
EMCASCO concedes that at least some of the mud, sand and clay had been tracked onto the public road by trucks operated by Wilson-Riley. Two other sources of the debris have been hypothesized: (1) that the debris could have washed onto the public road from the unpaved excavation pit entrance drive, and (2) that it could have been washed up from the county-maintained bar ditch.
At the time of the accident Wilson-Riley was insured under a general liability policy issued by AISLIC (See EMCASCO's Appendix at 130, et seq). AISLIC's policy issued to Wilson-Riley excluded coverage for injuries arising out of the use of motor vehicles (¶ 2.g., Id. at 135). Wilson-Riley also had a commercial auto insurance policy issued by EMCASCO, which was in force on the date of the accident (Id. at 16, et seq).
SLS and Wilson-Riley made timely reports to the respective insurers of the accident which occurred on February 15, 2001.
On April 25, 2002, a wrongful death action was filed in Smith County, Texas, in a case styled and numbered Jaime Langston, Individually, and as a representative of the Estate of James Brady Langston v. Wilson-Riley, Inc., No. 02-1221-C (the "Langston lawsuit") (See EMCASCO's Appendix at 4-7).
On April 27, 2001, EMCASCO issued its initial reservation of rights letter to Wilson-Riley (AISLIC's Appendix at 153-155) and on May 20, 2004, AISLIC issued a reservation of rights letter to Wilson-Riley (Id. at 169). EMCASCO sent a supplemental reservation of rights letter to Wilson-Riley on May 22, 2002 (EMCASCO's Appendix at 8-9).
A reservation of rights letter is a standard procedure of an insurer to place an insured on notice that although the insurer has recognized a duty to defend, there may be circumstances which later arise which exclude coverage under the insured's policy.
On July 15, 2002, an amended petition was filed in the "Langston lawsuit" which added SLS Management Corp as a defendant in addition to Wilson-Riley (EMCASCO's Appendix at 10-14). On July 23, 2002, AISLIC notified SLS that it would handle the first amended petition's claims against SLS as outlined in its previous reservation of rights letter sent to Wilson-Riley on May 20, 2002 (AISLIC's Appendix at 185). On November 6, 2002, AISLIC sent a supplemental reservation of rights letter to SLS which inter alia advised that counsel had been retained to represent SLS's interests. (Id. 200-205).
By letter dated January 8, 2003, EMCASCO informed SLS that it would not participate in the defense of any claims brought against SLS in the "Langston lawsuit" based upon the fact that EMCASCO's policy was limited to accidents which involved the use of SLS's vehicles (Id. at 220-222).
After the "Langston lawsuit" was filed EMCASCO's senior claims examiner wrote AISLIC's director of complex claims division on May 13, 2002, opining that Wilson-Riley's policy issued by EMCASCO did not cover the incident and requested that AISLIC agree that its policy issued to Wilson-Riley provided coverage (AISLIC's Appendix at 163-164). On May 20, 2002, AISLIC's representative replied, advising that Chad Parker had been retained to defend Wilson-Riley, subject to reservation of rights and noting AISLIC's disagreement with the coverage issue (Id. at 166-67).
On July 18, 2002, the insureds' personal attorney wrote Chad Parker noting Wilson-Riley's and SLS's acceptance of the manner in which attorneys retained by the insurers would defend the "Langston lawsuit". (EMCASCO's Appendix at 15). On January 15, 2003, a third amended petition was filed in the "Langston lawsuit" — the last live pleading filed in the underlying case (Id. at 101-105).
On or about January 30, 2003, AISLIC obtained a full and complete release of SLS as a party in the underlying lawsuit upon the payment of $200,000.00 and the claims against SLS were dismissed with prejudice.
It appears that Mr. Parker and counsel retained by EMCASO as well as the insureds' personal attorney participated in a mediation (AISLIC's Appendix at 250-251). Although the mediator's letter is dated January 29, 2002, based upon other correspondence in the record and the internal inconsistency at page 2 of the letter, it appears that the letter was sent on January 29,2003.
On February 4, 2003, EMCASCO's coverage counsel wrote AISLIC's senior claims representative requesting AISLIC to participate in discussions of a proposed settlement of the claims against Wilson-Riley in the "Langston lawsuit." (AISLIC's Appendix at 253-254).
On February 6, 7 and 11, 2003, the insureds' personal attorney wrote AISLIC's director of complex claims, opining that AISLIC's policy issued to Wilson-Riley provided coverage and requesting that he be provided with the name of the attorney retained by the insurer to defend Wilson-Riley. (Id. at 126-129). On February 13, 2003, he wrote both insurers' senior claims representatives, urging them to resolve their coverage dispute, so that the underlying suit against Wilson-Riley could be settled (Id. at 118-119).
On February 25, 2003, an attorney for EMCASCO wrote AISLIC's senior claims representative requesting that AISLIC contribute one-half of a $350,000 proposed settlement of Wilson-Riley's liability in the "Langston lawsuit." (EMCASCO's Appendix at 120-123).
On February 28, 2003, AISLIC's counsel wrote EMCASCO's coverage counsel expressing the opinion that coverage for the allegations in the third amended petition filed in the "Langston lawsuit" invoked coverage under Wilson-Riley's auto policy issued by EMCASCO, but further offered to contribute $20,000 toward the $350,000 settlement offer (ALISCO's Appendix at 261-262). On March 11, 2003, EMCASCO's coverage counsel wrote ALISCO's counsel rejecting its offer to contribute $20,000 toward the settlement of Wilson-Riley's liability (Id. at 265-266).
On April 7, 2003, EMCASCO — on behalf of Wilson-Riley — and Jaime Langston entered into a compromise settlement agreement whereby EMCASCO agreed to pay $350,000.00 in a structured settlement in exchange for dismissal of all claims against Wilson-Riley (AISLIC's Appendix at 197-205) and on April 14, 2003, the "Langston lawsuit" was dismissed with prejudice (Id. at 206).
Attorney's fees : EMCASCO alleges that when AISLIC refused to contribute more than $20,000.00 toward the settlement of the "Langston lawsuit", it abandoned and breached its "duty to defend" Wilson-Riley pursuant to AISLIC's general liability policy issued to the insured.
The parties agree that each had a duty to defend Wilson-Riley pursuant to the claims asserted in the third amended petition filed in the "Langston lawsuit" under the "eight corners" or "complaint allegation" rule as set out in Argonaut Southwest Insurance Co. v. Maupin, 500 S.W.2d 633, 635 (Texas 1973).
As related above, the defense of Wilson-Riley's interests was somewhat unorthodox, occasioned primarily by the on-going coverage dispute between the insurer parties. Although EMCASCO asserts that AILSIC abandoned Wilson-Riley, thus violating its duty to defend in the "Langston lawsuit," the summary judgment evidence does not support this argument. In fact there is no evidence in the summary judgment materials which raises a genuine issue of fact as to whether AILSIC abandoned its duty to defend Wilson-Riley in the underlying action. Specifically, as noted above, AISLIC advised Wilson-Riley in its reservation of rights letter sent shortly after the initial petition in the "Langston lawsuit" was filed that it had retained Chad Parker to represent it (AISLIC Appendix at 169). When the petition was amended to include SLS as a defendant party, EMCASCO notified SLS that it would not provide a defense to SLS under its auto policy (Id. at 220-222). At about the same time AISLIC notified SLS's representative that it would retain Chad Parker to represent SLS's interests as well (Id. 185). Subsequently, the personal attorney for the insureds agreed to an arrangement whereby counsel retained by EMCASCO would handle the defense of Wilson-Riley and that Mr. Parker would handle the defense of SLS (EMCASCO's Appendix at 15), and Parker filed a formal motion to withdraw, substituting EMCASCO's attorney as counsel of record for Wilson-Riley (Id. at 194-95).
Being aware of the on-going coverage dispute Wilson-Riley's personal attorney wrote AISLIC on February 7, 2003, requesting that it retain counsel to represent Wilson-Riley's interests. AISLIC's director of complex claims in turn told Mr. Parker that he would need to re-appear in the case on behalf of Wilson-Riley (AISLIC's Appendix at 325), and Parker in turn prepared for the impending trial (AISLIC's Supplemental Appendix at 6 ¶ 7).
On April 7, 2003, the compromise settlement was reached between the plaintiff in the "Langston lawsuit" and Wilson-Riley, whereby EMCASCO agreed to pay sums to the plaintiff in a structured settlement in exchange for a full release of all claims brought against Wilson-Riley (EMCASCO's Appendix at 197-205) and on April 14, 2003, the "Langston lawsuit" was dismissed with prejudice (Id. at 206).
In agreeing to settle the underlying action on behalf of Wilson-Riley, EMCASCO was discharging its duty to defend Wilson-Riley and its obligation of fair dealing towards its own insured. In settling the lawsuit EMCASCO was also protecting against the possibility of a Stowers action brought by Wilson-Riley in the event that after trial a judgment against it in excess of policy limits — for which it was determined that the auto policy provided coverage — exceeded the settlement offer made by Langston's attorney. The fact that Mr. Parker never appeared at trial on behalf of Wilson-Riley is irrelevant to the issue of whether AISLIC complied with its duty to defend Wilson-Riley, since the settlement reached by EMCASCO extinguished any possible liability on Wilson-Riley's part in the "Langston lawsuit".
G.A. Stowers Furniture Co. v. American Indemnity Co., 15 S.W.2d 544 (Tex.Comm'n App. 1929, holdings approved).
Therefore, AISLIC is entitled to summary judgment in its favor on EMCASCO's attorney's fees claim.
Indemnity Claim : EMCASCO next claims that AISLIC is required to indemnify it for the settlement which EMCASCO obtained on behalf of Wilson-Riley in the "Langston lawsuit." The duty to indemnify is separate and distinct from the duty to defend. King v. Dallas Fire Insurance Co., 85 S.W.3d 185, 187 (Tex. 2002);see also Trinity Universal Insurance Co. v. Cowan, 945 S.W.2d 819, 821-22 (Tex. 1997). The duty to indemnify is informed by the actual facts which are found in the underlying lawsuit.
Since the underlying suit was settled, and no fact findings were made, the indemnity issue raises the specter of having to try the case on the issue of causality long after the underlying action was terminated. Fortunately, in light of the facts on which the parties agree, this eventuality does not exist in the present action.
In the instant case, it is clear that the insurers disagreed on which of the two policies issued to Wilson-Riley provided coverage to the insured. As noted above, the parties' claims representatives disagreed between themselves in May 2002 and both insurers raised coverage issues in their reservation of rights letters to Wilson-Riley.
In its motion for summary judgment EMCASCO relies principally on the fact that none of Wilson-Riley's trucks had operated in the vicinity during the seventeen hour period preceding the time of the accident (Plaintiff's brief at 16). This fact was well known at the time of the accident and has been so stipulated as fact by the parties. Notwithstanding this fact, EMCASCO never undertook to seek a judicial determination of whether it was obligated to defend Wilson-Riley in the underlying lawsuit.
"When the petition in the underlying lawsuit does not allege facts sufficient for a determination of whether those facts, even if true, are covered by the policy, the evidence adduced at trial in a declaratory judgment action may be considered along with the allegations in the underlying petition." State Farm Fire Casualty Co. v. Wade, 827 S.W.2d 448, 452 (Tex.Civ.App.-Corpus Christi 1992, writ denied) citingGonzales v. American States Insurance Co., 628 S.W.2d 184, 186 (Tex.Civ.App.-Corpus Christie 1982, no writ).
The case of Western Heritage Insurance Co. v. River Entertainment, 998 F.2d 311 (5th Cir. 1993), provides a prime example of a case brought by an insurer against its insured to determine the insurer's obligation to defend in which the district court resorted to consideration of matters outside the petition filed against the insured by a third-party.
The parties have cited a number of cases from other jurisdictions which interpret auto insurance policies and have cited cases decided under Texas substantive law relating to auto insurance coverage in an effort to assist the court in making an "Erie guess" as to whether EMCASCO's auto insurance policy provided coverage to Wilson-Riley to the exclusion of AILSCO's general liability coverage. No reported decision applying Texas substantive law has addressed the coverage issue applied to an auto policy where the incident in question was caused by a vehicle which deposited a substance on a roadway hours before the accident.
The decision of the North Dakota supreme court in Houser v. Austin Mutual Insurance Co., 389 N.W.2d 626 (North Dakota 1986) and that of the Massachusetts supreme court in Mullen v. Hartford Accident and Indemnity Co, 191 N.E. 394 (Mass. 1934) involve facts which are most analogous to the stipulated and uncontroverted evidence in the present case. In both cases the substances which caused the accidents had been deposited by or leaked from a motor vehicle, and in both cases the court found that the accidents were covered by the insureds' automobile liability policies.
The dearth of cases involving substances deposited by or leaked from motor vehicles is not surprising since as time passes the identity of the person or entity responsible becomes more difficult to determine. However, in the present case the evidence clearly establishes that the accretion of mud and clay on the public rod was attributable to Wilson-Riley's trucks tracking the substances onto the roadway and that such occurrences had taken place over an extended period of time. E.g. see Testimony of witnesses identified in EMCASCO's Undisputed Facts at ¶ 9.b. Plaintiff's Motion for Summary Judgment filed on July 2, 2004, at pages 3-4.
In arguing that Texas substantive law would not hold that the accident was caused by the "use of a vehicle," EMCASCO cites the Texas supreme court's decisions in LeLeaux v. Hamshire-Fannett I.S.D., 835 S.W.2d 49 (Tex. 1992) and in Mid-Century Insurance Co. v. Lindsey, 997 S.W.2d 153 (Tex. 1999).
The facts in both cases are clearly distinguishable from the agreed facts in the instant case. In LeLeaux the injured party struck her head while attempting to close the back door of a school bus, while the bus was parked, the driver was not present and the injured student was the only occupant of the bus. InLindsey, the injured child was struck by a blast from a shotgun which was accidentally fired by another child in a pickup truck in close proximity to the parked vehicle occupied by the injured child. The injured child's parents sued the wife's insurer under her uninsured/underinsured motorists coverage (UUMC) after the father of the boy who fired the gun settled at the policy limits of his auto liability policy.
EMCASO asserts that since trucking operations had ceased at the excavation pit approximately seventeen hours before the one car accident, Texas courts would not find that it was caused by theuse of a motor vehicle. It relies principally on the Lindsey court's references to Couch on Insurance and Appleman'sInsurance Law and Practice from which the court distilled three factors in determining whether an accident arose out of the use of a motor vehicle. Lindsey, 947 S.W.2d at 157 and note 19. However, the court proceeded to state: "We agree that the factors, though unavoidably abstract, are helpful in focusing the analysis, although we neither read the treatises as proposing an absolute test, nor do we regard the factors as such." Id. (Emphasis added). This qualification makes clear that the court was not stating a hard and fast proposition of state law and further in the context of the decision rendered, constitutesdicta.
If anything, the Lindsey case suggests that the Texas supreme court gives a liberal and expansive definition to the "use of a motor vehicle." Indeed, three justices dissented to the holding opining that the court's decision was in direct conflict with the court's prior decision in National Union Fire Insurance Co. v. Merchants Fast Motor Lines, 939 S.W.2d 139 (Tex. 1997), Id. at 164-165.
In the present case it is clear that mud and clay tracked on to the public road by Wilson-Riley's trucks necessarily involved the use of motor vehicles, triggering coverage under its auto policy with EMCASCO.
EMCASCO argues in the alternative that coverage under its policy does not apply because of the application of the concurrent causation doctrine. However, the Texas supreme court has spoken definitively to this issue in determining when indemnity is required. See Utica National Insurance Co. of Texas v. American Indemnity Co., 141 S.W.3d 198, 204 (Tex. 2004). In cases involving separate and independent causation, the covered event and the excluded event each independently cause a plaintiff's injury, and an insurer must provide coverage despite the exclusion. On the other hand, in cases involving concurrent causation, the excluded and covered events combine to cause the injuries. Because the two causes cannot be separated, the exclusion is triggered.
In the present case it is undisputed that the accident was caused by mud and clay on the public roadway. It is likewise undisputed that at least some of the mud and clay had been tracked onto the roadway by Wilson-Riley's trucks as they left the excavation pit. Arguably mud and clay could have been washed from the unpaved road leading from the pit to the public road. However, mud and clay are naturally existing substances and by their very nature are fungible. Moreover, all of the mud and clay came from the immediate vicinity where the excavation pit was located, rendering it impossible to distinguish that part of the debris on the road which was tracked from the pit by Wilson-Riley trucks from that which might have been washed down from the unpaved road or up from the bar ditch. Suffice it to say that EMCASCO has produced no evidence from which a fact finder could reasonably determine independent sources of the mud and clay on the public road at the time of the accident. The facts present a classic example of concurrent causation, which under the substantive law of Texas triggers AISLIC's auto exclusion under its general liability policy issued to Wilson-Riley. Therefore, AISLIC is entitled to summary judgment on EMCASCO's claim for indemnity.
AISLIC advances additional arguments in opposing EMCASCO's action for indemnity, which need not be addressed in light of the above.
IT IS, THEREFORE, ORDERED that EMCASCO's motion for summary judgment is denied and that AISLIC's motion for summary judgment is granted.
A copy of this memorandum opinion and order shall be transmitted to counsel for the parties.