Opinion
Civil Action No. 5:03-CV-199-C.
July 7, 2004
ORDER
On this date, the Court considered the Motion for Summary Judgment filed by Defendant, Mid-Continent Casualty Company ("Mid-Continent"), on April 15, 2004. Plaintiff, West Texas Agriplex ("Agriplex"), filed its Response on May 27, 2004. Mid-Continent filed a Reply on June 11, 2004. After considering all relevant arguments and evidence, the Court GRANTS Defendant's Motion for Summary Judgment.
The Court will consider Agriplex's Response, although filed some 20 days late. However, the Court admonishes counsel for Agriplex that future pleadings will be filed on time or they will not be considered by the Court.
The Court will consider Mid-Continent's Reply, even though this Court no longer considers a reply unless it has first ordered said reply to be filed. See Specific Requirements for District Judge Sam R. Cummings, § II Motion Practice, ¶ B ("Judge Cummings will entertain only motions and responses but no replies unless otherwise ordered.").
I. PROCEDURAL HISTORY
On July 21, 2003, Agriplex sued Mid-Continent in the 106th District Court of Gaines County, Texas. On August 21, 2003, Mid-Continent removed the case to this Court. Mid-Continent filed a motion to dismiss or in the alternative for a more definite statement on August 25, 2003, based on technical and typographical errors in Agriplex's Petition. This Court subsequently denied Mid-Continent's motion to dismiss but granted its motion for a more definite statement in an order dated October 15, 2003. On October 24, 2003, Agriplex filed its First Amended Original Petition, First Amended Petition for Declaratory Judgment and Plaintiff's First Amended Demand for Jury Trial. Mid-Continent filed its Original Answer on November 14, 2003, after seeking leave of court. Within its Original Answer, Mid-Continent filed a counterclaim for declaratory judgment seeking a declaration that Mid-Continent had no duty to defend the claim asserted against Agriplex by a third party and that no coverage was afforded under the policy by virtue of the third party's claim. Mid-Continent filed its Motion for Summary Judgment on April 15, 2004. Agriplex filed its Response on May 27, 2004. Mid-Continent filed its Reply on June 11, 2004.
II. BACKGROUND
Mid-Continent issued a commercial general liability insurance policy ("the Policy") to Agriplex, effective March 23, 2002 to March 23, 2003. Agriplex's insurance broker was not a recording agent of Mid-Continent. Agriplex received a copy of the Policy, but its general manager never read the Policy. It is unclear if anyone else at Agriplex was familiar with the contents of the Policy or if anyone at Agriplex ever read the Policy. Agriplex paid Mid-Continent a total of $17,500.00 for the annual premium on the Policy.
Agriplex is in the business of mixing and selling fertilizer to area farming operations. Agriplex not only mixes the fertilizer formulas but also "impregnates" the fertilizer with pesticides and herbicides upon a customer's request. On or about April 19, 2002, Agriplex filled an order for Benny Redman, an employee for West Gaines Seed and Delinting, for the farms of Birdsong Everton. The fertilizer mixture was to include the herbicides Prowl and Trilin. The mixture was dispersed upon approximately 120 acres of Birdsong Everton's farmland Agriplex subsequently discovered that a formulation error resulted in too high a concentration of the herbicides being contained in the fertilizer mixture. Agriplex immediately contacted Birdsong Everton and explained the situation. Agriplex warned Birdsong Everton that the farmland on which the mixture was dispersed (approximately 120 acres) was sterilized for that planting season. Birdsong Everton would have planted peanuts on that particular acreage. Although the land was incapable of supporting a peanut crop that year, the same acreage did support the production of a cover crop later in the year.
Agriplex's broker notified Mid-Continent of the mishap. On May 15, 2002, Mid-Continent sent a correspondence to Agriplex (1) acknowledging its receipt of Agriplex's claim to recover for lost production of Birdsong Everton's peanut crop, (2) notifying Agriplex of Mid-Continent's decision to investigate the claim under a full reservation of rights, and (3) making a settlement offer in the amount of $4,500.00 (an amount Mid-Continent contends was allowed under an endorsement to the policy that limited damages to $5,000.00 per occurrence resulting from an application of herbicides by a licensed applicator, less the $500.00 deductible). Agriplex rejected Mid-Continent's offer to settle the claim for $4,500.00.
Mid-Continent alleges that it responded to Agriplex, by way of the May 15, 2002 correspondence, within 20 days of receipt of Agriplex's notice of the incident.
In its Motion and Brief, Mid-Continent argues that no coverage exists under the Policy because of three exclusions-exclusions (f), (j), and (m).
Relevant excerpts of the Policy are provided herein, although both parties provided copies of the policy in their appendices. The Policy states under Section I-Coverages:
1. Insuring Agreement
a. We 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 those damages. However, we will have no duty to defend the insured against "suit" seeking damages for "bodily injury" or "property damage" to which this insurance does not apply. We may at our discretion, investigate any "occurrence" and settle any claim or "suit" that may result. But:
(1) The amount we will pay for damages is limited as described in Section III — Limits of Insurance; . . .
* * *
No other obligation or liability to pay sums or perform acts or services is covered unless explicitly provided for. . . .
* * *
2. Exclusions
This insurance does not apply to:
* * *
f. Pollution
(1) "Bodily injury" or "property damage" arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of "pollutants": . . .
(d) At or from any premises or location on which any insured or any contractors or subcontractors working directly or indirectly on any insured's behalf are performing operations if the "pollutants" are brought on or to the premises, site or location in connection with such operations by such insured, contractor or subcontractor . . .
* * *
j. Damage To Property
"Property damage" to: . . .
(5) That particular part of real property on which you or any contractor or subcontractors working directly or indirectly on any insured's behalf are performing operations, if the "property damage" arises out of those operations; . . .
* * *
m. Damage To Impaired Property Or Property Not Physically Injured.
"Property damage" to "impaired property" or property that has not been physically injured, arising out of:
(1) A defect, deficiency, inadequacy or dangerous condition in "your product" or "your work"; . . .See Pl. App. at 149-52.
The Court will refer to exclusions (f), (j), and (m) as the pollution, damage-to-property, and impaired-property exclusions, respectively.
The Policy also goes on to define specific terms incorporated in the agreement and the three exclusions listed above.
SECTION V — DEFINITIONS
* * *
8. "Impaired property" means tangible property, other than "your product" or "your work" that cannot be used or is less useful because:
a. It incorporates "your product" or "your work" that is known or thought to be defective, deficient, inadequate or dangerous; or
b. You have failed to fulfill the terms of a contract or agreement;
if such property can be restored to use by:
a. The repair, replacement, adjustment or removal of "your product" or "your work"; or
b. Your fulfilling the terms of the contract or agreement.
* * *
13. "Occurrence" means an accident, including continuous or repeated exposure to substantially the same general harmful conditions.
* * *
15. "Pollutants" mean any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. . . .
* * *
17. "Property damage" means:
a. Any physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or
b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the "occurrence" that caused it.
* * *
18. "Suit" means a civil proceeding in which damages because of . . . "property damage" . . . to which this insurance applies are alleged. "Suit" includes:
a. An arbitration proceeding in which such damages are claimed and to which the insured must submit or does submit with our consent; or
b. Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.
* * *
20. "Your product" means:
a. Any good or product, other than real property, manufactured, sold, handled, distributed or disposed of by:
(1) You; . . .
* * *
21. "Your work" means:
a. Work or operations performed by you or on your behalf; and
b. Materials, parts or equipment furnished in connection with such work or operations.See Pl. App. at 158-61.
The parties also dispute whether the "Pesticide Or Herbicide Applicator Coverage" endorsement to the Policy, Endorsement CG 01 56 04 99 ("the herbicide endorsement"), modified coverage in this instance. The relevant portions of the endorsement are as follows.
TEXAS CHANGES-PESTICIDE OR HERBICIDE APPLICATOR COVERAGE
* * *
LIMIT OF LIABILITY of "property damage" — $5,000 per "occurrence" unless otherwise indicated below:
$______ per "occurrence." [left blank by the parties]
(If no entry appears above, information required to complete this endorsement will be shown in the Declarations as applicable to this endorsement.)
With respect to the operations described in the Schedule:
A. Paragraph (1)(d) of Exclusion f. [Pollution] of Section I — Coverage A — Bodily Injury And Property Damage Liability does not apply if the insured is properly licensed to conduct the operations.
B. Paragraphs (4) and (5) of Exclusion j. [Damage To Property] of Section I — Coverage A — Bodily Injury And Property Damage Liability do not apply to "property damage" occurring as a result of such operations performed at premises under your care, custody or control.
C. The following is added to Paragraph 5. of Section III — Limits Of Insurance:
Subject to the Each Occurrence Limit, the most we will pay for "property damage" to property covered under Paragraph 2. above is $5,000 per "occurrence" unless otherwise indicated.See Pl. App. at 145.
The relevant portions referenced in paragraph C of the above endorsement ( i.e. Paragraph 5. of Section III — Limits Of Insurance) states as follows:
SECTION III — LIMITS OF INSURANCE
* * *
2. The General Aggregate Limit is the most we will pay for the sum of: . . .
b. Damages under Coverage A, except damages because of "bodily injury" or "property damage" included in the "products-completed operations hazard"; . . .
* * *
5. Subject to 2. or 3. above, whichever applies, the Each Occurrence Limit is the most we will pay for the sum of:
a. Damages under Coverage A; . . . because of all "bodily injury" and "property damage" arising out of any one "occurrence."See Pl. App. at 156.
Mid-Continent determined during the course of its investigation into the claim that Agriplex was not a licensed applicator. Mid-Continent concluded that because Agriplex was not a licensed applicator, it did not fit under the herbicide endorsement; thus, the pollution exclusion would apply. Mid-Continent determined therefore that no coverage existed because the exclusions excluded coverage under facts of the claim. Because Mid-Continent had previously offered the $4,500.00, it sent a correspondence on September 28, 2002 re-extending its prior offer but denying that coverage existed under the Policy.
The herbicide endorsement plainly states that it overrides exclusions (f)(1)(d) and (j)(4-5) to provide for coverage in instances that those two exclusions would normally operate to exclude.
The third-party claimant, Birdsong Everton, never brought a suit against Agriplex for the damage to its acreage. Nonetheless, Agriplex negotiated a settlement with the third-party claimant on March 26, 2003 for the sum of $72,000.00. The settlement document provided for a full and final discharge and release of Agriplex and its insurer, Mid-Continent. See Pl. App. at 227-29.
Agriplex brought suit against Mid-Continent in state court for contractual and extra-contractual damages. Mid-Continent counterclaimed for declaration of rights. Mid-Continent filed the motion for summary judgment now before this Court.
III. STANDARD
Summary judgment is appropriate only if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any," when viewed in the light most favorable to the non-moving party, "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986) (internal quotations omitted). A dispute about a material fact is "genuine" if the evidence is such that a reasonable jury could return a verdict for the non-moving party. Id. at 248. In making its determination, the court must draw all justifiable inferences in favor of the non-moving party. Id. at 255. Once the moving party has initially shown "that there is an absence of evidence to support the nonmoving party's case," Celotex Corp. v. Catrett, 477 U.S. 317, 325, 91 L.Ed. 2d 265, 106 S. Ct. 2548 (1986), the non-movant must come forward, after adequate time for discovery, with significant probative evidence showing a triable issue of fact. FED. R. CIV. P. 56(e); State Farm Life Ins. Co. v. Gutterman, 896 F.2d 116, 118 (5th Cir. 1990). Conclusory allegations and denials, speculation, improbable inferences, unsubstantiated assertions, and legalistic argumentation are not adequate substitutes for specific facts showing that there is a genuine issue for trial. Douglass v. United Servs. Auto. Ass'n, 79 F.3d 1415, 1428 (5th Cir. 1996) (en banc); SEC v. Recile, 10 F.3d 1093, 1097 (5th Cir. 1993). To defeat a properly supported motion for summary judgment, the non-movant must present more than a mere scintilla of evidence. See Anderson, 477 U.S. at 251. Rather, the non-movant must present sufficient evidence upon which a jury could reasonably find in the non-movant's favor. Id.
In reviewing the summary judgment evidence, "Rule 56 does not impose upon this Court a duty to sift through the record in search of evidence to support a party's opposition to summary judgment." Ragas v. Tenn. Gas Pipeline Co., 136 F.3d 455, 458 (5th Cir. 1998). Rather, the Court need rely only on those portions of the submitted documents to which the nonmoving party directs the Court's attention. Id.; see also Forsyth v. Barr, 19 F.3d 1527, 1536-37 (5th Cir. 1994) (finding two volumes of summary judgment evidence insufficient to preclude summary judgment when plaintiffs failed to identify specific portions which supported their claims).
Rule 56(e), Federal Rules of Civil Procedure, requires the party against whom the motion is made to "set forth specific facts showing that there is a genuine issue for trial." Absent such a showing, a properly supported motion for summary judgment should be granted. See Eversley v. MBank Dallas, 843 F.2d 172, 173-74 (5th Cir. 1988); Resolution Trust Corp. v. Starkey, 41 F.3d 1018, 1022-23 (5th Cir. 1995). Once a properly supported motion for summary judgment is presented, the nonmoving party must rebut with "significant probative" evidence. Ferguson v. National Broadcasting Co., Inc., 584 F.2d 111, 114 (5th Cir. 1978). "[T]he nonmoving litigant is required to bring forward significant probative evidence demonstrating the existence of a triable issue of fact." In re Municipal Bond Reporting Antitrust Lit., 672 F.2d 436, 440 (5th Cir. 1982). A party defending against a proper motion for summary judgment may not rely on mere denial of material facts or on unsworn allegations in the pleading or arguments and assertions in briefs or legal memoranda; rather, the party's response, by affidavit or otherwise, must set forth specific facts showing that there is a genuine issue for trial. See Union Planters Nat'l Leasing v. Woods, 687 F.2d 117, 119 (5th Cir. 1982).
IV. DISCUSSION
This case presents contractual and extra-contractual claims brought by Agriplex based on the diversity jurisdiction of this Court. The counterclaims filed by Mid-Continent are brought pursuant to 28 U.S.C. § 2201, often referred to as the Declaratory Judgment Act. This case differs from most insurance contract disputes filed in this Court in that no underlying litigation was ever filed against Agriplex.
Mid-Continent asks for summary judgment based on the following reasons:
1. Breach of contract: There is no coverage for the claim asserted by WTA because [—]
1. The duty to defend never arose, and
2. Assuming, arguendo, WTA's claims qualified for coverage under the basic insuring agreement, the following policy exclusions unambiguously precluded coverage under the circumstances present in this instance: (i) Pollution Exclusion, (ii) Damage to Property, or (iii) Damage to Impaired Property;
2. Extra-contractual claims: The claims to recover extra-contractual damages predicated on allegations of (a) unfair settlement practices, and (b) misrepresentations regarding the existence of coverage fail, as a matter of law, because —
1. Mid-Continent had neither a duty to defend nor indemnify WTA;
2. Mid-Continent had a reasonable basis ( i.e., an absence of coverage) for denying WTA's claim;
3. The post-loss misrepresentations, if any, were not a producing cause of damages; and
4. Texas law does not recognize tort claims ( e.g., negligence and violations of the DTPA) based on Mid-Continent's failure, if any, to indemnify its insured.
Def. Mot. at 3-4.
In its Brief in Opposition, Agriplex argues that summary judgment is improper because
1. the duty to defend was never triggered, but it did exist under the contractual nature of the Policy;
2. the affirmative defenses are not satisfied in relation to the
However, Agriplex continues that "the duty to defend issues have been satisfied and the Court is considering only the duty to indemnify now." Pl. Br. at 11.
a. pollution exclusion — not applicable,
b. damage to property exclusion — not applicable,
c. impaired property exclusion — not applicable,
d. herbicide endorsement preempts exclusions; and
3. the extra-contractual claims survive.
Pl. Br. at 10-20.
A. Waiver of the Defenses
Agriplex argues that Mid-Continent has not satisfied affirmative defenses. In its Brief in Opposition, Agriplex seems to be arguing that Mid-Continent did not plead affirmative defenses on which Mid-Continent now attempts to rely; and/or if Mid-Continent did adequately plead the exclusions, Mid-Continent has not satisfied its burden of showing that those exclusions apply. Under Texas law, Mid-Continent bears the burden of establishing that a policy exclusion constitutes an avoidance of or affirmative defense to coverage. Valmont Energy Steel, Inc. v. Commercial Union Ins. Co., 359 F.3d 770, 774 (5th Cir. 2004) (citing Tex. Ins. Code Ann. art. 21.58(b) (Vernon Supp. 2004), and Performance Autoplex II Ltd. v. Mid-Continent Cas. Co., 322 F.3d 847, 854 (5th Cir. 2003)). The Court looks to the Federal Rules of Civil Procedure for procedural requirements of a case advanced in federal court. See Fed.R.Civ.P. 1. Federal Rule 8(c) requires that ". . . a party shall set forth affirmatively accord and satisfaction, arbitration and award, assumption of risk, contributory negligence, discharge in bankruptcy, duress, estoppel, failure of consideration, fraud, illegality, injury by fellow servant, laches, license, payment, release, res judicata, statute of frauds, statute of limitations, waiver, and any other matter constituting an avoidance or affirmative defense." See Fed.R.Civ.P. 8(c). Rule 8(c) lists 19 specific affirmative defenses and concludes with the residuary clause "any other matter constituting an avoidance or affirmative defense." Id.
"In the years since adoption of the rule, the residuary clause has provided the authority for a substantial number of additional defenses which must be timely and affirmatively pleaded." Ingraham v. U.S., 808 F.2d 1075, 1078 (5th Cir. 1987). "These include: exclusions from a policy of liability insurance. . . ." Id. (citing 5 Wright Miller, Federal Practice and Procedure: Civil, § 1271 (1969 supp.), and 27 Fed.Proc., L.Ed. § 62.63 (1984 supp.), for discussion and citations). Failure to plead an affirmative defense may constitute a waiver and warrant the subsequent exclusion of the defense from the case. Morris v. Homco Int'l, Inc., 853 F.2d 337, 342 (5th Cir. 1988) (citing Trinity Carton Co. v. Falstaff Brewing Corp., 767 F.2d 184, 194 (5th Cir. 1985)).
Agriplex contends in its Response that certain "affirmative defense[s] of condition precedent for which defendant has not been pled [sic]." See Pl. Resp. at 12. Agriplex specifically asserts that Mid-Continent did not plead the pollution exclusion as an affirmative defense. See id. Upon a careful review of Mid-Continent's Original Answer, the Court finds that Mid-Continent specifically pleaded the pollution exclusion. See Def. Orig. Answer at 5. Thus, Agriplex's argument that Mid-Continent failed to plead the affirmative defense of the pollution exclusion is baseless.
The Court will interpret Agriplex's Response as also having argued Mid-Continent's failure to assert the affirmative defense of the "damage-to-property exclusion" because Agriplex's Response adopted paragraphs 24 through 34 (which included the contention that Mid-Continent failed to plead affirmative defenses) as part of its argument for the damage-to-property exclusion. Agriplex also contends in paragraph 37 of its Response that Mid-Continent never asserted the "impaired-property exclusion." The Court will also construe paragraph 37 of Agriplex's Response as raising the argument that Mid-Continent failed to assert the affirmative defense of the impaired-property exclusion. Mid-Continent contends in its Reply that it "answered by . . . ple[ading] affirmative defenses predicated upon policy exclusions, including the pollution exclusion." See Def. Reply at 1.
A defendant must plead an affirmative defense with enough specificity or factual particularity to give the plaintiff fair notice of the defense that is being advanced. Automated Med. Labs. v. Armour Pharm. Co., 629 F.2d 1118, 1122 (5th Cir. 1980) ("Although absolute specificity in pleading is not required, fair notice of the affirmative defense is."); Ingraham v. United States, 808 F.2d 1075, 1079 (5th Cir. 1987) ("A defendant should not be permitted to 'lie behind a log' and ambush a plaintiff with an unexpected defense."); see also Woodfield v. Bowman, 193 F.3d 354, 362 (5th Cir. 1999) (finding exclusions to a policy of insurance to be an affirmative defense under Mississippi law that must be specifically pleaded).
Even though Mid-Continent did not specifically advance the damage-to-property or the impaired-property exclusions as affirmative defenses in its Original Answer, this Court must determine if Mid-Continent did advance them in such a manner as to provide notice to Agriplex. In its Original Answer, under the heading of "Affirmative Defenses," Mid-Continent stated that Agriplex was "contractually estopped under the clear and unambiguous terms and conditions of the policy which were issued to Plaintiff and set forth in the coverage and exclusions provided under the Agreement." See Def. Orig. Answer at 5. The Court finds that such an assertion is inadequate to notify Agriplex of Mid-Continent's intention to rely on the specific exclusions of damage to property and impaired property. Mid-Continent's baldly naming the broad affirmative defense of contractual estoppel as set forth in the coverage and exclusions falls well short of the minimum particulars needed to identify the affirmative defense in question and thus notify Agriplex of Mid-Continent's intention to rely on the specific contractual exclusions of damage to property and impaired property. See Woodfield, 193 F.3d at 362. However, Mid-Continent did specifically plead exclusion (f), the pollution exclusion, under the heading of "Affirmative Defenses" in its Original Answer. The purpose of requiring a defendant to plead exclusions to an insurance policy specifically in its answer is to advise the court and the opposing party of the intended defense. Automated Med. Labs., 629 F.2d at 1122-23. Another requirement for an affirmative defense raised in the trial court is that it be done in a manner that does not result in unfair surprise. Ingraham, 808 F.2d at 1079.
Under the liberal pleading and amending guidelines of the Federal Rules, a party has ample opportunity to assert an affirmative defense but must raise it at a time and in a manner consistent with the Rules. Id. at 1122. An affirmative defense may be raised in a motion for summary judgment, but only if that motion is the first pleading responsive to the substance of the allegations. United States v. Burzynski Cancer Research Inst., 819 F.2d 1301, 1307 (5th Cir. 1987). Failure to do so constitutes waiver. Woodfield, 193 F.3d at 362. The Court finds that Mid-Continent did not assert the damage-to-property exclusion or the impaired-property exclusion as an affirmative defense in its Original Answer. Because Mid-Continent's Original Answer filed in this Court was its first responsive pleading, Mid-Continent was required to raise those two exclusions in that pleading. Mid-Continent may not now try to assert the damage-to-property and the impaired-property exclusions in its Motion for Summary Judgment. Moreover, the Court notes that Mid-Continent made no reference to those two exclusions when it originally attempted to deny coverage. Rather, Mid-Continent only cited to the pollution exclusion in its original correspondence with Agriplex. The Court is aware that Mid-Continent reserved its rights under the Policy; however, simply reserving the right to later assert exclusions to coverage does not act to prevent waiver under Rule 8(c) for failure to affirmatively plead them at the proper time. Thus, the Court need only consider the pollution exclusion and the herbicide endorsement in analyzing coverage for indemnity.
Agriplex also argues that because Mid-Continent proffered the $4,500.00 amount, it waived any reliance upon the exclusions as a defense. Under Texas law, the general rule is that, while a waiver or estoppel may preclude an insurer's defense arising out of a condition or forfeiture provision, these doctrines normally do not operate to prevent the assertion of a defense of no coverage. Ideal Mut. Ins. Co. v. Myers, 789 F.2d 1196, 1201 (5th Cir. 1986). An exception to the general rule arises if an insurer assumes the insured's defense without reserving its rights under the policy and with the knowledge of the facts indicating non-coverage. Id. However, the record and evidence offered by both parties indicate that Mid-Continent reserved its rights under the policy. See Pl. App. at 215-16. Although an ineffective reservation of rights results in waiver of and estoppel to assert all policy defenses, Ideal Mutual Insurance Company v. Myers, 789 F.2d 1196, 1201 (5th Cir. 1986), Agriplex does not argue that Mid-Continent's reservation of rights was deficient. The issue of whether Mid-Continent's offer of settlement waived its reliance on the pollution exclusion has no bearing on the outcome of this case because, as the Court finds below, the herbicide endorsement applies (thereby overriding the pollution exclusion).
B. Policy Interpretation
Under Texas law, insurance policies are construed according to ordinary principles governing the construction of contracts. "When the words of a policy are unambiguous, they are to be given their plain, ordinary, and generally accepted meaning, unless the policy clearly indicates that the contractual terms have been used in a different or technical sense." Gulf Chem. Metallurgical Corp. v. Associated Metals Minerals Corp., 1 F.3d 365, 369 (5th Cir. 1993). The determination of whether an ambiguity exists in a contract is a question of law. See Kelley-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462, 464 (Tex. 1998). A contract is ambiguous if it is susceptible to more than one meaning. Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983). Where the policy language is susceptible to more than one construction, it should be "construed strictly against the insurer and liberally in favor of the insured." Gulf Chem., 1 F.3d at 369 (internal quotation mark omitted). "And where the question of interpretation involves an exception or limitation on [the insurer's] liability under the policy, an even more stringent construction is required." Id. (internal quotation marks omitted). Indeed, "we must adopt the construction of an exclusionary clause urged by the insured as long as that construction is not itself unreasonable, even if the construction urged by the insurer appears to be more reasonable or a more accurate reflection of the parties' intent." Glover v. Nat'l Ins. Underwriters, 545 S.W.2d 755, 761 (Tex. 1977). However, a contract is not ambiguous merely because the parties advance conflicting interpretations. See Kelly-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462, 464 (Tex. 1998).
Because the Court finds that the language of the Policy is clear and unambiguous, the rules of construction need not be applied to construe the parties' intent. Paul Revere Life Ins. Co. v. First Nat'l Bank in Dallas, 359 F.2d 641, 643 (5th Cir. 1966). The intent of the Policy may be evidenced by the stated coverage, the premiums paid for it, and its wording. See, e.g., Patel v. Northfield Ins. Co., 940 F. Supp. 995, 998 (N.D. Tex. 1996) (Sanders, J.). This Court has no right to make a new contract for the parties. Travelers Indem. Co. v. Equipment Rental Co, 345 S.W.2d 831, 835 (Tex.Civ.App.-Houston 1961, writ ref'd n.r.e.) (citing Hatch v. Turner, 193 S.W.2d 668 (Tex. 1946) for the proposition that if the provisions of the insurance agreement involved are clear and unambiguous, yet do not express the intention of the parties, it should have been written in language which did express their intention). The Court specifically finds that no ambiguity exists in the exclusion and endorsement at issue in this lawsuit.
There is testimony in the record that Agriplex's General Manager never read the Policy; thus, it its unclear if anyone at Agriplex ever read the Policy to determine what the exclusions and endorsements covered. See Pl. App. at 203.
1. Settlement prior to suit being filed and the duty to defend
Agriplex did present a claim to Mid-Continent, which Mid-Continent originally agreed to cover for an amount of $5,000.00, less the $500.00 deductible. Agriplex refused this settlement offer in a belief that it was entitled to indemnity in the entire amount of the claim. Mid-Continent contends that the duty to defend never arose because a lawsuit was never filed against the Agriplex. Mid-Continent further argues that the underlying harm was not covered under the policy because of exclusions to coverage or, in the alternative, if coverage was afforded under the herbicide endorsement, such coverage was limited to $5,000.00. Agriplex seems to concede that the duty to defend never arose. See Pl. Brief at 11 ("Defendant concedes that the claimants never filed a lawsuit because it was settled prior to said filing. As a result, no duty to defend was triggered under the 'eight-corners doctrine.'"); but see Pl. Brief at 10. ("[A]lthough a duty to defend exists contractually under the policy, the issue never became ripe as the case was adjudicated by settlement. However, if Mid-Continent contends the adjudication was not fair then the duty to defend is ripe."). The Policy clearly states that Mid-Continent "will have the right and duty to defend the insured against any 'suit' seeking damages." See Pl. App. at 149. The Policy clearly defines "suit" to mean "any civil proceeding . . ." including an arbitration or "any other alternative dispute resolution proceeding" in "which the insured submits with [Mid-Continent's] consent." See Pl. App. at 161.
Although the consent to settlement clause was not argued by the parties, the Court acknowledges that such a clause was present in the Policy. However, because Mid-Continent failed to raise the issue of consent to settle, this Court will not consider it for purposes of this order. The Policy unambiguously required the consent of Mid-Continent prior to any voluntary settlement incurred by Agriplex. See Pl. App. at 157 ("No insured will, except at that insured's own cost, voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without our consent.") (emphasis added). "The general rule is that 'an insurer who denied liability on the grounds that the claim was not covered by the policy was liable for the insured's settlement before suit when the claim was found to have been within the policy coverage.'" See Travelers Indem. Co. v. Equipment Rental Co., 345 S.W.2d 831, 835 (Tex.Civ.App. 1961) (citing Annotation 67 A.L.R.2d, pp. 1086, 1088; Ideal Mut. Ins. Co. v. Myers, 789 F.2d 1196, 1200 (5th Cir. 1986) ("It is well settled that once an insurer has breached its duty to defend, the insured is free to proceed as he sees fit; he may engage his own counsel and either settle or litigate, at his option."). The settlement must have been reasonable in order for an insurer to be liable for a settlement for which it did not consent. Id. If, after wrongfully refusing to defend and indemnify, an insurer attempts to rely on a consent-to-settlement provision in a policy, the insurer's reliance will be unfounded because it has waived the provision of the policy providing: "the insured shall not, except at his own cost, voluntarily make any payment, assume any obligation or incur any expense." See, e.g., id.; Travelers Indem. Co., 345 S.W.2d at 835; United Servs. Auto. Ass'n v. Russom, 241 F.2d 296, 301 (5th Cir. 1957) ("The assured at that stage is entitled to handle the claim as would a prudent uninsured person."). However, the insurer is not bound by prior settlements or judgments as to the issue of coverage. See, e.g., Columbia Mut. Ins. Co. v. Fiesta Mart, Inc., 987 F.2d 1124, 1127 (5th Cir. 1993). Rather, an insured is only bound by the results of the prior suit "to the extent that the judgment involves a cause of action within the coverage of the policy." See Enserch Corp. v. Shand Morahan Co., Inc., 952 F.2d 1485, 1495-96 n. 13 (5th Cir. 1992) (quoting Maryland Cas. Co. v. Mitchell, 322 F.2d 37, 39 (5th Cir. 1963)). Thus, subsumed in the case law seems to be a requirement that a duty to defend be triggered, the insurer breached the duty to defend by denying a defense that was owed, and the underlying cause of action or claim be within the coverage of the policy. Once these conditions are met, an insurer may be found liable for a reasonable pre-suit settlement made by its insured.
Regardless of the parties' contentions, the Court finds that the duty to defend was not triggered. The parties agree to at least that much because Agriplex continues in its Brief that "the duty to defend issues have been satisfied and the Court is considering only the duty to indemnify now." Pl. Br. at 11. However, as stated above, Agriplex also seems to be arguing that although the duty to defend was never triggered, the duty did exist under the facts of the claim. As such, whether the alleged claim was covered under the policy is where the dispute lies between the two parties. Such a contention goes more to the issue of indemnity rather than the duty to defend because "the duty to indemnify arises from the actual facts that are developed to establish liability in the underlying suit." Quorum Health Res. v. Maverick County Hosp., 308 F.3d 451, 468 (5th Cir. 2002).
2. Duty to indemnify
An insurer's duty to defend and duty to indemnify are distinct and separate. Farmers Tex. County Mut. Ins. Co. v. Griffin, 955 S.W.2d 81, 82 (Tex 1997). However, the scope of the insurance coverage determines the outcome of both inquiries. Jim Johnson Homes v. Mid-Continent Cas. Co., 244 F. Supp. 2d 706, 714 (N.D. Tex. 2003). Under Texas law if the claims alleged against the insured are outside the scope of coverage, then the insurer has no duty to indemnify. Id.; see also Gulf States Ins. Co. v. Alamo Carriage Serv., 22 F.3d 88 (5th Cir. 1994).
Exclusions
As the Court has stated above, Mid-Continent raised only the specific affirmative defense of the pollution exclusion. Thus, the Court finds that the other two exclusions have been waived because they were not pleaded as affirmative defenses in Mid-Continent's Original Answer, its first responsive pleading. The Federal Rules require an affirmative defense to be pleaded; failure to plead such a defense constitutes waiver. Trinity Carton Co. v. Falstaff Brewing Corp., 767 F.2d 184, 194 (5th Cir. 1985).
The pollution exclusion acts to remove from coverage "'property damage' arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of 'pollutants': At or from any premises or location on which any insured or any contractors or subcontractors working directly or indirectly on any insured's behalf are performing operations if the 'pollutants' are brought on or to the premises, site or location in connection with such operations by such insured, contractor or subcontractor. . . ." See Pl. App. at 150. "Property damage" is further defined to include any damage to "[t]hat particular part of real property on which you or any contractor or subcontractors working directly or indirectly on any insured's behalf are performing operations, if the 'property damage' arises out of those operations. . . ." See Pl. App. at 161. "Pollutants" are defined to "mean any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste." See id. The Court finds that the herbicides applied to Birdsong Everton's farmland clearly fall within the meaning of pollutants (chemicals) as defined by the Policy. The parties do not dispute that those herbicides clearly caused damage to real property on which Agriplex or its contractors or subcontractors were performing operations while working directly or indirectly on Agriplex's behalf. Nor do the parties dispute that the dispersal, release, or discharge of those herbicides resulted in the property damage. Rather, Agriplex argues that the negligent act was the mixing of the herbicides, not the dispersal. The Court finds this argument to be misplaced. The mere improper mixing of the herbicides with the fertilizer alone would have caused no harm to Birdsong Everton's farmland It is the dispersal, discharge, or release of the improper mixture that harms the property. Thus, the Court finds that the pollution exclusion, exclusion (f)(1)(d) of the Policy, operates under these facts to bar coverage. However, the Court must also look to other provisions of the Policy which might reinstate coverage.
Herbicide endorsement
The herbicide endorsement operates to effectively bring back into coverage operations that would be excluded under the pollution exclusion and the damage-to-property exclusion. See Pl. App. at 146, ¶¶ A. and B. However, paragraph C limits that "re-acquired" coverage to $5,000.00 per occurrence. See id. at ¶ C. The parties argue whether Agriplex was required to have an applicator's license in this instance. Agriplex argues that the purpose of the requirement that the "insured is properly licensed to conduct the operations" serves only to prevent the endorsement's coverage for operations that are performed illegally. According to the record, including deposition testimony, Texas law did not require an applicator's license for the application of Prowl and Trilin in this instance. See Pl. App. at 121-22, 200. Mid-Continent does not offer any evidence to show that a license was required to apply the two chemicals under the method which Agriplex used in this instance. Thus, the Court finds that Agriplex was in fact " properly licensed to conduct the operations" because no license was required. If no license is required for a particular conduct, then logic dictates that the proper license for such activity is no license at all. Thus, the Court further finds that the herbicide endorsement was applicable in this instance and coverage was afforded under the Policy. See, e.g., Pl. App. at 122 ("So if [Agriplex] did not need a license to apply the chemicals in question, would there be coverage under the pesticide or herbicide applicator coverage? [Answer] Yes.").
The Court finds that the language of the herbicide endorsement is unambiguous. It clearly states in two different instances that the limit of liability is $5,000.00 per occurrence. Nowhere in its Brief in Opposition does Agriplex argue that the herbicide endorsement is ambiguous. Rather, Agriplex only argues that the herbicide endorsement operates to preempt the pollution exclusion. See Pl. Br. at 18-19. The Court agrees and finds that the herbicide endorsement, Endorsement CG 01 56 04 99, clearly operates to preempt exclusion (f)(d)(1), the pollution exclusion. See Pl. App. at 145 ("Paragraph (1)(d) of Exclusion f . . . does not apply if the insured is properly licensed to conduct the operations."). Thus, based on the Court's findings and discussion above, the herbicide endorsement applies in this instance and provides coverage of $5,000.00 for this occurrence.
C. Extra-contractual Claims
All of Agriplex's extra-contractual claims under Article 21.21 of the Texas Insurance and under the Deceptive Trade Practices Act and for breach of duty can be characterized as claims for bad faith conduct or misrepresentation. 1. Bad faith
Upon a finding by this Court that no duty to defend existed, there can be no bad faith claims for a breach of that duty. The parties concede and do not contest that no lawsuit was ever filed by Birdsong Everton against Agriplex. Rather, Agriplex reached a settlement with Birdsong Everton prior to any underlying suit being filed. Thus, no duty to defend ever arose and no bad faith claims exist based on the duty to defend.
Although the Court has found that coverage was afforded under the herbicide endorsement for $5,000.00 per occurrence, the evidence clearly shows that Mid-Continent honored that coverage and offered that amount, less the Policy deductible. Agriplex refused to accept the offer. Even though Mid-Continent may have later tried to assert that no coverage existed under the Policy, it still maintained the offer of $4,500.00. The Court finds that Mid-Continent proffered coverage under the Policy for the amount of $4,500.00. Because the Court has found above that the pollution exclusion applied as well as the herbicide endorsement, the Court further finds that Mid-Continent did not act in bad faith or breach its duty to indemnify Agriplex under the Policy when Mid-Continent offered $4,500.00 as settlement for the claim. Mid-Continent proffered the amount allowed under the herbicide endorsement, less the Policy deductible. Thus, Mid-Continent cannot be liable for any bad faith claims. Summary judgment for Mid-Continent is proper as to all of Agriplex's bad faith claims.
2. Misrepresentations
Agriplex also seeks to recover damages under alleged misrepresentations regarding coverage. An insured may bring an extra-contractual claim based not on the duties to defend or indemnify but on the tortious act of misrepresenting the terms of the policy. See Southstar Corp. v. St. Paul Surplus Lines, 42 S.W.3d 187, 194 (Tex.App.-Corpus Christi 2001, no pet.). Nevertheless, the misrepresentation must be a producing cause of an insured's actual damages. See Tex. Bus. Comm. Code Ann. § 17.50(a) (Vernon Supp. 2002). The record, including the deposition testimony, clearly indicates that no one from Mid-Continent ever spoke with anyone from Agriplex prior to Agriplex's submission of its claim for coverage for the damage done to Birdsong Everton's acreage. The deposition testimony of Agriplex's General Manager also indicates that Agriplex's insurance broker never represented that he worked for Mid-Continent. Importantly, the record indicates that no representations were made by Mid-Continent prior to the loss. Ample case law has held that an insured normally cannot bring a misrepresentation claim for any alleged representations made after a loss. Royal Globe Ins. Co. v. Bar Consultants, Inc., 577 S.W.2d 688, 694-95 (Tex. 1979); Provident Am. Ins. Co. v. Castaneda, 988 S.W.2d 189, 200 n. 55 (Tex. 1998) (citing Royal Globe Ins. Co. with approval as distinguishing pre-loss representations, which were actionable, from post-loss representations, which were not actionable); Lexington Ins. Co. v. Bennett Evans Grain Co., 642 F. Supp. 78, 83 (S.D. Tex. 1986) (stating that an insurer's post-loss representations or denial of coverage is not in connection with a purchase or sale; therefore, any DTPA claim based upon such representations should be dismissed). Agriplex did not identify or address any issues of material fact regarding any possible pre-loss misrepresentations. Thus, summary judgment for Mid-Continent is appropriate as to Agriplex's misrepresentation claims.
V. CONCLUSION
For the above-stated reasons, findings of fact, and conclusions of law, the Court finds that Mid-Continent's Motion for Summary Judgment should be GRANTED. Specifically, the Court grants Mid-Continent's Motion as to Agriplex's extra-contractual claims, claims for a breach of the duty to defend, and claim that Mid-Continent breached its duty to indemnify. Mid-Continent offered to settle the claim for $4,500.00, the amount the Policy provided for under Endorsement CG 01 56 04 99, the herbicide endorsement. That amount is all that Mid-Continent is required to indemnify Agriplex for under the terms and conditions of the Policy. The Court finds that Mid-Continent's actions were reasonable under the circumstances. Even though Agriplex repeatedly refused the settlement offer of $4,500.00, the Court ORDERS Mid-Continent to indemnify Agriplex for $4,500.00 (the $5,000.00 amount covered under Endorsement CG 01 56 04 99 less the $500.00 deductible) for the settlement of this occurrence.All relief not expressly granted is DENIED. All pending motions are DENIED.
SO ORDERED.