United States District Court, N.D. Texas, Abilene Division.
AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY, Plaintiff,
RENTECH STEEL, L.L.C., et al., Defendants.
Civil Action No. 1:07-CV-108-C
Attorneys & Firms
Ellen Van Meir, Harrison H. Yoss, Melanie Harber Sumrow, Thompson Coe Cousins & Irons LLP, Dallas, TX, for Plaintiff.
Harvey L. Morton, Law Office of Harvey L. Morton, Lubbock, TX, David W. Jones, W. Curt Webb, Beck Redden & Secrest, Houston, TX, Steven L. Clack, Clack Law Firm, Kerrville, TX, for Defendants.
SAM R. CUMMINGS, UNITED STATES DISTRICT JUDGE
*1 Pending before the Court are the following motions:
(1) Motion for Summary Judgment, filed January 28, 2008, by Plaintiff, American International Specialty Lines Insurance Company (“Plaintiff” or “AISLIC”);
(2) AISLIC’s Motion to Strike Rentech Response, filed March 4, 2008;
(3) AISLIC’s Objections and Motion to Strike Summary Judgment Evidence Attached to Teel Response, filed March 4, 2008; and
(4) AISLIC’s Motion for Leave to File Its Reply to Defendants’ Responses to Its Motion for Summary Judgment Subject to Its Objections and Motions to Strike, filed March 4, 2008.
The Court considered AISLIC’s Motion for Summary Judgment, together with the Response filed February 18, 2008, by Defendants Preston Teel, Lesa Crosswhite, and Jennings Teel (collectively “Teels”).1 Rentech Steel, L.L.C. (“Steel”), by way of the Bankruptcy Trustee for Steel’s bankruptcy estate, filed the only other response. AISLIC objects to the Bankruptcy Trustee filing a response on behalf of Steel, a Defendant named specifically by AISLIC in this declaratory judgment suit. However, the objection is not relevant because Steel’s Response is merely an adoption of the Teels’ arguments and summary judgment evidence, which are properly before this Court. Additionally, the bankruptcy was apparently filed because of the judgment the Teels obtained against Steel in the underlying litigation. Thus, the outcome of this declaratory judgment action may have direct impact upon the bankruptcy. AISLIC’s Motion to Strike Steel’s Response is accordingly DENIED.
AISLIC’s Motion to Strike Summary Judgment Evidence Attached to Teel Response is DENIED for the reasons stated below.
On March 4, 2008, AISLIC filed a Motion for Leave to File a Reply and the Teels filed a Response thereto on March 24, 2008. The Court GRANTS AISLIC’s Motion for Leave and the Reply attached to AISLIC’s Motion for Leave is DEEMED FILED.
This is a declaratory judgment action filed by AISLIC to determine coverage within a commercial umbrella liability policy it issued to Rentech Boiler Systems, Inc. (“Systems”) under policy number 6192846 with an effective date from August 26, 2004 through August 26, 2005 (“the Policy” or “AISLIC Policy”). Apparently, Rentech Steel, L.L.C.; Rentech Boiler Systems, Inc.; and Rentz Family Partnership, Ltd. (“Partnership”) are entities under the control of or owned by a common owner/entity. The degree of this relationship, though unclear to the Court, is not a matter before the Court. What is not disputed is that a request was made to add Steel to the Policy as an insured and Steel was added. (Pl.’s Am. Compl. ¶ 3.1; Pl.’s App. 27, 60-61 (listing Steel in the schedule of endorsements to the Policy)). AISLIC concedes that the issue of whether Steel was an insured on the Policy at the time of the accident giving rise to this dispute occurred “is not relevant to the issues raised in this brief....” (Pl.’s Br. 3, n.2.)2
*2 The underlying lawsuit arises from an accident involving Preston Teel (“Preston”), who was 16 years of age at the time, that occurred on June 3, 2005, at Steel’s manufacturing facility in Abilene, Texas. The Teels alleged in the underlying lawsuit that while working on his second day on the job, Preston was cleaning a piece of industrial machinery as it was operating, his hands became caught in the operating machinery, and he sustained severe injuries such that his hands were almost severed. Defendants state that his hands were “ripped off” in a rolling press machine, leaving him disabled and in pain for the rest of his life. (Defs.’ App. Ex. 8 (describing Preston’s injuries and treatment)).3 Neither party disputes the circumstances surrounding this accident or the severity of the injuries incurred.
In the underlying suit, the Teels brought allegations of negligence and negligence per se against Steel. Steel is a nonsubscriber to the Texas Workers’ Compensation Act (“TWCA”). Other claims were also originally brought against Systems, Partnership, and the manufacturer of the power roller machine involved in the accident. It appears that these other claims either settled or were dismissed prior to the state court trial in the underlying suit.4
Prior to the state court trial, Steel filed for Chapter 7 bankruptcy protection. The press announcement of the bankruptcy stated that protection was sought because of the damages sought by the Teels. (Defs.’ App. Ex. 5). The press statement also indicated that Steel’s business would continue in the same facilities with the same employees and would simply operate under a different name. (Id.) The bankruptcy court lifted the stay to allow the state court case to proceed with the recognition that the underlying plaintiffs, the Teels, were pursuing claims against Steel’s insurer and no remainder of any liability would be pursued against the bankruptcy estate. (Pl.’s App. Ex. G.)
Following a trial in state court of the underlying litigation, a judgment was entered against Steel for an amount in excess of $11 million. The state court verdict determined that Steel was negligent and proximately caused the accident involving Preston. That judgment is on appeal before the Eastland Court of Appeals. AISLIC defended Steel in the underlying state court case and continues to do so on appeal.
Plaintiff AISLIC seeks a declaration from this Court that it has no duty to defend Steel in the underlying suit and that there is no duty to indemnify Steel for the policy limits on the judgment entered in the underlying litigation.
Summary judgment is appropriate when “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, 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.” Fed. R. Civ. P. 56(c). A dispute about a material fact is “genuine” if “it is real and substantial, as opposed to merely formal or a sham,” and such that a reasonable jury could return a verdict for the nonmoving party. Bazan v. Hidalgo County, 246 F.3d 481, 489 (5th Cir. 2001). A fact is “material” only if it might affect the outcome of the suit under governing law. Id. “Factual disputes that are irrelevant or unnecessary will not be counted.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In coming to a decision, the court must draw justifiable inferences in favor of the nonmoving party. Id. at 255 (emphasis added). Any inference drawn in the nonmoving party’s favor must also be reasonable. Dean v. City of Shreveport, 438 F.3d 448, 454 (5th Cir. 2006). An actual controversy of fact exists only where both parties have submitted evidence of contradictory facts. Olabishiomotosho v. City of Houston, 185 F.3d 521, 525 (5th Cir. 1999).
*3 Once the moving party has initially shown “that there is an absence of evidence to support the nonmoving party’s case,” Celotex Corporation v. Catrett, 477 U.S. 317, 325 (1986), the nonmovant must come forward with significant probative evidence showing a triable issue of fact. State Farm Life Ins. Co. v. Gutterman, 896 F.2d 116, 118 (5th Cir. 1990). Conclusory statements, unsubstantiated assertions, and speculation are not substitutes for specific facts showing that a genuine issue of material fact exists. Douglass v. United Servs. Auto. Ass’n, 79 F.3d 1415, 1428 (5th Cir. 1996). That is, it is incumbent upon the non-moving party to present evidence—not just conjecture and speculation—to support each element of the claim. Grimes v. Tex. Dep’t of Mental Health & Mental Retardation, 102 F.3d 137, 139-40 (5th Cir. 1996). Therefore, to overcome a proper motion for summary judgment, the nonmovant must present more than a mere scintilla of evidence and bring forward sufficient evidence upon which a jury could reasonably find in the nonmovant’s favor. Anderson, 477 U.S. at 251-52. If, pursuant to the summary judgment evidence, no reasonable juror could find in favor of the nonmovant, then no genuine issue of material fact exists. Jenkins v. Methodist Hosp. of Dallas, Inc., 478 F.3d 255, 260 (5th Cir. 2007). The nonmovant’s burden is not satisfied by “some metaphysical doubt as to the material facts.” Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994). Likewise, affidavits, or portions thereof, that are not based on personal knowledge or that are based merely on information and belief cannot be considered in deciding a motion for summary judgment. Richardson v. Oldham, 12 F.3d 1373, 1378-79 (5th Cir. 1994).
Summary judgment is mandated if the nonmovant fails to make a showing sufficient to establish the existence of an element essential to his case on which he will bear the burden of proof at trial. Celotex Corp., 477 U.S. at 322. “In such a situation, there can be ‘no genuine issue as to any material fact,’ since a complete failure of proof concerning an essential element of the nonmoving party’s case necessarily renders all other facts immaterial.” Id. at 322-23.
When reviewing evidence, if no factual showing is made in opposition to a motion for summary judgment, the district court is not required to search the record sua sponte for some genuine issue of material fact and may rely entirely on the evidence designated by the moving party showing no such triable issue. Ragas v. Tenn. Gas Pipeline Co., 136 F.3d 455, 458 (5th Cir. 1998) (“Rule 56 does not impose on this Court a duty to sift through the record in search of evidence to support a party’s opposition to summary judgment.”). 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).
Finally, “[a] party whose motion or response is accompanied by an appendix must include in its brief citations to each page of the appendix that supports each assertion that the party makes concerning the summary judgment evidence.” LR 56.5(c). In other words, factual assertions must be supported by citations to proper and admissible summary judgment evidence that supports such an assertion. This Court will consider only the admissible summary judgment evidence discussed and specifically identified with citation in the parties’ briefs. Rizzo v. Children’s World Learning Centers, Inc., 84 F.3d 758, 762 (5th Cir. 1996) (“the nonmovant must then direct the court’s attention to evidence in the record”). The Court will not, “in the absence of any proof, assume that the non-moving party could or would prove the necessary facts.” McCallum Highlands v. Washington Capital Dus, Inc., 66 F.3d 89, 92 (5th Cir. 1995), as modified, 70 F.3d 26 (5th Cir. 1995).
If a reply is allowed by the Court, it is the practice of courts in this district and the Fifth Circuit to refuse to consider arguments raised for the first time in reply briefs. Peteet v. Dow Chem. Co., 868 F.2d 1428, 1437 (5th Cir. 1989); Senior Unsecured Creditors’ Comm. of First RepublicBank Corp. v. FDIC, 749 F. Supp. 758, 772 (N.D. Tex. 1990) (Fitzwater, J.) (“raised ... for the first time in its reply brief and the court will not consider it”).
*4 Plaintiff seeks a declaration that it has no duty to defend or indemnify its insured because the underlying claims are excluded under a specific policy exclusion—the “Various Laws” exclusion. The Declaratory Judgment Act permits federal courts to “declare the rights and other legal relations of any interested party seeking such declaration whether or not further relief is or could be sought.” 28 U.S.C. § 2201(a). Plaintiff moves for summary judgment on the duty to defend and indemnify. In the present case, this Court must interpret the Policy to determine if it covers the underlying claims asserted by the Teels.
At issue in the case at hand, and the crux of the summary judgment dispute, is whether the underlying claims of negligence and negligence per se against Steel are excluded from coverage by the Policy pursuant to its “Various Laws” exclusion, which provides in relevant part:
V. Various Laws
This insurance does not apply to any obligation of the Insured under any of the following:
1. the Employee Retirement Income Security Act of 1974 (including amendments relating to the Consolidated Omnibus Budget Reconciliation Act of 1985), or any amendment or revision thereto, or any similar law; or
2. any workers’ compensation, disability benefits or unemployment compensation law, or any similar law.
(Pl.’s App. 15.)
AISLIC argues that the underlying negligence and negligence per se claims brought against Steel fall under an “obligation of the Insured under ... [a] workers’ compensation ... law.” (Pl.’s Br. 8 (quoting Pl.’s App. 15)).
A. Policy Interpretation
Under Texas law, insurance policies are construed according to ordinary principles governing the construction of contracts. The interpretation of an insurance policy is a question of law for a court to determine. New York Life Ins. Co. v. Travelers Ins. Co., 92 F.3d 336, 338 (5th Cir. 1996) (citations omitted). The general rule, then, is that a court must determine the intention of the parties as expressed in the language of the policy. See Kelley-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462, 464 (Tex. 1998). The parties’ intention is to be determined by an inquiry limited to the four corners of the insurance policy and what is actually stated therein. See Esquivel v. Murray Guard, Inc., 992 S.W.2d 536, 544 (Tex. App.—Houston [14th Dist.] 1999). Consideration must be given to all the provisions, with reference to the contract as a whole rather than to any single provision. Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983). Each provision should be given meaning so that coverage is not illusory. See Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d 819, 828 (Tex. 1997).
“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. Kelley-Coppedge, 980 S.W.2d at 464. A contract is ambiguous if it is susceptible to more than one meaning. Coker, 650 S.W.2d at 393. 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). Where the contract is unambiguous, extrinsic evidence “will not be received for the purpose of creating an ambiguity or to give the contract a meaning different from that which its language imports.” Universal C.I.T. Credit Corp. v. Daniel, 243 S.W.2d 154, 157 (Tex. 1951).
*5 Only after a court has determined that a contract is ambiguous can it consider the parties’ interpretations. H.E. Butt Grocery Co. v. Nat’l Union Fire Ins. Co., 150 F.3d 526, 529 (5th Cir. 1998). 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). When a contract is ambiguous, extrinsic evidence may be considered for the contract’s construction. Clardy Mfg. Co. v. Marine Midland Business Loans Inc., 88 F.3d 347, 352 (5th Cir. 1996).
B. Duty to Defend
Under Texas law, a court determines an insurer’s duty to defend by following the “Eight-Corners” or “Complaint Allegation” rule. St. Paul Guardian Ins. Co. v. Centrum GS Ltd., 283 F.3d 709, 713 (5th Cir. 2002). According to this rule, the court examines only the allegations in the underlying complaint and the insurance policy in determining whether a duty to defend exists. Id. “The duty to defend arises when a third party sues the insured on allegations that, if taken as true, potentially state a cause of action within the terms of the policy.” Id. “But when the plaintiff’s petition makes allegations which, if proved, would place the plaintiff’s claim within an exclusion from coverage, there is no duty to defend.” Gulf States Ins. Co. v. Alamo Carriage Serv., 22 F.3d 88, 90 (5th Cir. 1994). The duty to defend “is not affected by facts ascertained before suit, developed in the process of the litigation, or by the ultimate outcome of the suit.” TRI Core Inc. v. Northland Ins. Co., 2002 WL 31548754, *4 (N.D. Tex. 2002) (quoting Am. Alliance Ins. Co. v. Frito-Lay, Inc., 788 S.W.2d 152, 154 (Tex. App.–Dallas 1990, writ dism’d). The duty to defend exists if the complaint contains at least one claim that is facially within the policy’s coverage. Id.; see also Lafarge, 61 F.3d at 393; Rhodes v. Chicago Ins. Co., 719 F.2d 116, 119 (5th Cir. 1983); Scottsdale Ins. Co. v. Travis, 68 S.W.3d 72, 75 (Tex. App.–Dallas 2001, pet. denied).
When applying the eight-corners rule, the allegations in the underlying complaint should be given a liberal interpretation. Nat’l Union Fire Ins. Co. v. Merchants Fast Motor Lines, 939 S.W.2d 139, 141 (Tex. 1997). “Stated differently, in case of doubt as to whether or not the [factual] allegations of a complaint against the insured state a cause of action within the coverage of a liability policy sufficient to compel the insurer to defend the action, such doubt will be resolved in insured’s favor.” Id. “In reviewing the underlying pleadings, the court must focus on the factual allegations that show the origin of the damages rather than on the legal theories alleged.” Id. The court is not allowed to “look outside the pleadings, or imagine factual scenarios which might trigger coverage.” Id. at 142. “In Texas, an insurer’s contractual duty to defend must be determined from the face of the pleadings, without reference to any facts outside the pleadings.” Id.
To assist in determining whether an insurer has a duty to defend, the Fifth Circuit has explained the parties’ shifting burdens of proof as follows:
The insured bears the initial burden of showing that the claim ... is potentially within the insurance policy’s scope of coverage. If the insurer relies on the policy’s exclusions to deny coverage, the burden shifts to the insurer to prove the exclusion applies. If the insurer is successful, the burden shifts back to the insured to show that an exception to the exclusion brings the claim ... potentially within the scope of coverage under the insurance policy.
*6 Harken Exploration Co. v. Sphere Drake Ins. PLC, 261 F.3d 466, 471 (5th Cir. 2001) (internal citations omitted).
Under this scenario, it must be shown that a claim was alleged in the underlying lawsuit which is potentially within the scope of coverage. See Data Specialties, Inc. v. Transcontinental Ins. Co., 125 F.3d 909, 911 (5th Cir. 1997).
Under Texas law, “insurers may limit their liability and impose whatever conditions they please upon their obligations not inconsistent with public policy.” Locomotive Eng’rs & Conductors Mut. Protective Ass’n v. Bush, 576 S.W.2d 887, 890 (Tex.Civ.App.–Tyler 1979, no writ).
C. Duty to Indemnify
In Texas, the duties to defend and indemnify are separate duties creating separate causes of action. See Am. Alliance Ins. Co. v. Frito-Lay, Inc., 788 S.W.2d 152, 153 (Tex. App.–Dallas 1990, writ dism’d). The duty to defend, which rests on allegations, is broader than the duty to indemnify, which can only be created by actual facts. “Because under Texas law the duty to defend is broader than the duty to indemnify, if there is no duty to defend, then necessarily there is no duty to indemnify.” Hill & Wilkinson, Inc. v. Am. Motorists Ins. Co., 1999 WL 151668, at *2 (N.D. Tex. Mar. 15, 1999) (Sanderson, Magistrate J.); see also Am. States Ins. Co. v. Bailey, 133 F.3d 363, 368 (5th Cir. 1998) (same). “If an insurer breaches the duty to defend, it may not contest a determination that its insured was liable in the underlying ... verdict (or the amount of either). It remains free, however, to argue that the assumed liability was not in actuality covered under its policy, and thus no duty to indemnify arises.” Western Alliance Ins. Co. v. N. Ins. Co. of New York, 176 F.3d 825, 830 (5th Cir. 1999); see also Employers Cas. Co. v. Block, 744 S.W.2d 940, 943 (Tex. 1988), overruled on other grounds, State Farm Fire & Casualty Co. v. Gandy, 925 S.W.2d 696, 714 (Tex. 1996). “The insured bears the burden of proving coverage, and to demonstrate a duty to indemnify it must present facts sufficient to demonstrate coverage.” Western Alliance Ins. Co., 176 F.3d at 831; Block, 744 S.W.2d at 944 (same).
A finding that an insurer may have breached its duty to defend its insured does not necessarily mean the insurer has a duty to indemnify the insured for all damages assessed. Willcox v. Am. Home Assur. Co., 900 F. Supp. 850, 856 (S.D. Tex. 1995); Enserch Corp. v. Shand Morahan & Co., 952 F.2d 1485, 1493 (5th Cir. 1992). “An insurer’s wrongful refusal to defend does not estop it or operate as a waiver of its right to assert the policy defense of non-coverage.” Enserch Corp., 952 F.2d at 1493; see also Texas United Ins. Co. v. Burt Ford Enters., Inc., 703 S.W.2d 828, 833 (Tex. App.–Tyler 1986, no writ) (same).
Curiously, as pointed out by the Teels, AISLIC does recognize that “[n]onsubscribers are potentially liable to their employees under the common law.” (Pl.’s Br. 8 (citing Tex. Labor Code §§ 406.033-034)). However, AISLIC chooses not to characterize the Teels’ claims as claims under common law. As already stated, AISLIC contends that because the Seventh Amended Original Petition in the underlying lawsuit alleges that Preston was injured while in the course and scope of his employment with Steel and the jury in that case so found, the underlying claims are encompassed by the TWCA. AISLIC argues that “[a]s his employer, Steel was obligated by law to compensate Preston for his on-the-job injury.” (Pl.’s Br. 11 (citing Tex. Labor Code § 406.031)). AISLIC reasons that “[a]ll damages awarded Teel in the Underlying Lawsuit, therefore, constitute an ‘obligation of the Insured [Steel] under ... any workers’ compensation ... law.’ ” (Pl.’s Br. 11 (quoting Pl.’s App. 15)).5 AISLIC bases this line of reasoning upon its argument that even though Steel was not a subscriber under the TWCA, the TWCA still applies to non-subscribers because the TWCA limits the defenses of an employer who chooses not to subscribe to the compensation scheme. AISLIC relies upon the fact that some district courts in the Fifth Circuit have determined for purposes of guarding removal jurisdiction that claims against non-subscribers are not removable pursuant to nonremoval provisions relating to workers’ compensation laws. See 28 U.S.C. § 1445(c).
*7 However, the federal courts’ policy of interpreting law for guarding removal jurisdiction cannot be said to form the basis for whether personal injury claims asserted against a nonsubscriber amount to an “obligation of the Insured under ... any workers’ compensation, disability benefits or unemployment compensation law, or any similar law.” As discussed by the following, district courts broadly construe § 1445(c) for purposes of removal.
The policy of nonremovability embodied in 28 U.S.C. § 1445(c) “represents a concern for the states’ interest in administering their own worker’s compensation laws and limiting the flow of these essentially local disputes into the federal courts.” 14C Charles Alan Wright et al., Federal Practice & Procedure § 1329 (3d ed. 1998). Section 1445(c) denotes an effort by Congress to restrict the district courts’ diversity jurisdiction in order to relieve the collectively overburdened docket of the federal courts. See Jones v. Roadway Express, Inc., Trevino v. Ramos, Nunez v. Wyatt Cafeterias, Inc., 771 F. Supp. 165, 167 (N.D. Tex. 1991) (claim against non-subscriber predates the TWCA and was preserved against non-subscriber employers). The Teels contend that the Various Laws exclusion has no bearing on their claims. They further advance an argument that the court in Hagendorf did not benefit from a response to the insurer’s argument based on the workers’ compensation exclusion. (Defs.’ Br. 9 (citing Hagendorf Constr. Co., Inc., 337 F. Supp. 2d at 904)). The Teels contend that had the Hagendorf court been “presented with the overwhelming authority holding that an employee’s claims against a non-subscriber employer arise under and are governed by principles of common-law negligence,” it likely would have ruled differently. (Defs.’ Br. 9-10.) The Teels also argue that regardless of Hagendorf, they specifically disavowed any reliance upon “any aspect of any workers’ compensation law” when bringing their underlying state court claims, thereby allowing the underlying state court defendant to utilize all defenses available under the common law. (Defs.’ Br. 11 (noting that the Hagendorf court was persuaded to reach its holding by the fact that the TWCA strips an employer of certain common-law defenses)).7 Thus, Hagendorf appears to differ from the case at hand in that Steel was free to assert any and all common-law defenses. The Teels had specifically pleaded that they were “not proceeding under any aspect of any workers’ compensation law, but [were] seeking relief under common law negligence....” (Pl.’s App. 66-67).
*8 Importantly, the Court also notes that the effective date of the Policy began on August 26, 2004, and the Hagendorf decision was not entered until September 7, 2004. Thus, AISLIC seems to imply that it relied upon case law not yet in existence when the Policy was executed for the proposition that the “Various Laws” exclusion would bar coverage for employee on-the-job injuries even though the employer, Steel, was a non-subscriber. This flaw seems to have been overlooked by both parties. Moreover, the Court finds it highly unlikely that an insurer writing a policy with multimillion-dollar limits would rely on unsettled case law on the issue of whether an employee’s negligence claims against a non-subscribing employer are claims arising under workers’ compensation laws. The other case law in existence at the time provided little assurance to AISLIC in that, as pointed out by the Teels, many state and federal courts, both before and after Hagendorf, have declined to adopt the reasoning the Hagendorf court adopted—including the Texas Supreme Court. See Russell v. Wendy’s Int’l, Inc., 219 S.W.3d 629, 641 (Tex. App.–Dallas 2007, pet. dism’d) (noting that the Texas Supreme Court declined to adopt such reasoning). Thus, AISLIC is left in the position of arguing that a multimillion-dollar policy premised an important exclusion upon unsettled case law relating to the issue of whether negligence claims against non-subscribing employers arise under the TWCA. Additionally, the insured could not have contemplated the Hagendorf ruling when it contracted with the insurer prior to the ruling.
The Court finds that the “Various Laws” exclusion does not preclude coverage of the Teels’ underlying negligence claims merely because Steel could have been a subscriber to the TWCA and Preston’s injuries could have been compensated under the TWCA. The “Various Laws” exclusion does not preclude coverage merely because the state court jury found that Preston was acting in the course and scope of his employment at the time of the accident. See Russell, 219 S.W.3d at 641 (declining to adopt the reasoning of the Tyler Court of Appeals which found that an employee’s suit against a non-subscriber was an action to collect benefits under the workers’ compensation laws of Texas). As discussed in Keng, the loss of defenses to an employer is merely a “carrot-stick approach” to employers in an effort to get them to subscribe to the TWCA. It does nothing to create an employee’s cause of action under common law; rather, it limits an employer’s defenses. After all, that is the purpose of the “carrot-stick approach”—the employer will suffer a greater degree of liability for choosing to forego the protections of the TWCA. An insurer is fully aware of this dilemma and has the opportunity to craft a provision to ban coverage for employee claims when an employer chooses to be a nonsubscriber. However, the “Various Laws” exclusion does not clearly and unambiguously do so.
To the extent the language of the exclusion is unambiguous, the Teels ask the Court to strictly construe the exclusion at issue here and find that their underlying claims are not covered by the exclusion because it does not apply to common-law claims for damages. The Court will do just that. As argued by the Teels, it is obvious that the “Various Laws” exclusion does not exclude coverage for the Teels’ claims.
The Teels further argue that the “Various Laws” exclusion only “exclude[s] coverage for claims seeking workers’ compensation, unemployment compensation, disability benefits, or similar benefits that employers are obligated by law to provide to employees.” (Defs.’ Br. 12.) In essence, this is an argument that the language of the exclusion is ambiguous. The Teels contend that if the interpretation of the “Various Laws” exclusion were given the broad interpretation AISLIC seeks, then there would be no need for insurers to include “Employer’s Liability” exclusions in policies as Lexington did in its policy. Moreover, the Teels argue that AISLIC’s interpretation would prevent the umbrella Policy at issue here from providing protection to other policies under its coverage, such as the Texas Mutual policy. (Defs.’ Br. 13, n.10 (citing Pl.’s App. 28 as listing the Texas Mutual policy in the AISLIC Policy “Schedule of Underlying Insurance”)). Thus, the Teels contend, the more likely interpretation, and more reasonable, is that the exclusion prevents coverage when workers’ compensation benefits are already being paid for an injury. The argument continues that, as an umbrella policy, AISLIC’s Policy would be required to provide additional coverage above the limits of the Texas Mutual policy. Thus, to exclude employees’ on-the-job injuries with the “Various Laws” exclusion would prevent the AISLIC Policy from providing any additional umbrella coverage for employee on-the-job bodily injury claims in relation to the Texas Mutual policy. This, the Teels reason, shows that the interpretation urged by AISLIC cannot stand. The Teels conclude with the contention that AISLIC is now attempting to seek “judicial underwriting and infer exclusionary language that does not exist” by “asking this Court to expand [the Policy’s] narrow Various Laws exclusion to include a de facto employer’s liability exclusion as well.” (Defs.’ Br. 13.)
*9 Ambiguity is a question of law for the Court to decide. To this extent, the language of the exclusion is ambiguous. Under Texas law, a contract is ambiguous if, after applying established rules of interpretation, the written instrument “remains reasonably susceptible to more than one meaning.” R & P Enterprises v. LaGuarta, Gavrel & Kirk, 596 S.W.2d 517, 519 (Tex. 1980); see also Towers of Texas, Inc. v. J & J Systems, Inc., 834 S.W.2d 1, 2 (Tex. 1992) (“A written instrument is ambiguous when its meaning is uncertain and doubtful or it is reasonably susceptible to more than one meaning, taking into consideration the circumstances present when the instrument was executed.”); Harris v. Rowe, 593 S.W.2d 303, 306 (Tex. 1979) (requiring a “genuine uncertainty” as to which of two meanings is proper). Here, as can be seen from the Teels’ argument, the “Various Laws” exclusion could be interpreted as only excluding claims already covered by workers’ compensation benefits rather than excluding all claims of employees, whether filed to collect workers’ compensation benefits or damages by common-law.8 In such a case, there is more than one plausible interpretation of the “Various Laws” exclusion. Thus, applying the provisions of the “Various Laws” exclusion to the dispute before this Court produces an uncertain or ambiguous result, and the exclusion will be interpreted against AISLIC and in favor of coverage. See Glover, 545 S.W.2d at 761.
At any rate, the “Various Laws” exclusion does not preclude coverage for AISLIC’s duty to defend or its duty to indemnify under the Policy because (1) the Teels’ underlying common-law claims were not brought pursuant to the TWCA, or (2) the “Various Laws” exclusion is ambiguous and will be given the reasonable interpretation urged by the Teels. Thus, the Court cannot grant summary judgment for AISLIC as to its request for a declaration from this Court “that it owes no duty to defend or indemnify Steel against Teel’s claims in the Underlying Lawsuit, and no duty to pay Teel as a judgment creditor under the AISLIC Policy.” (Pl.’s Br. 2.)
For the above-stated reasons and the reasons argued by the Teel Defendants in their Response Brief, Plaintiff’s Motion for Summary Judgment is DENIED; Plaintiff’s Motion to Strike Rentech Response is DENIED; Plaintiff’s Motion to Strike Summary Judgment Evidence Attached to Teel Response is DENIED; Plaintiff’s Motion for Leave to File Its Reply is GRANTED; and the Reply attached to AISLIC’s Motion for Leave is DEEMED FILED.
This case will be set for jury trial at a later date.
Jennings Teel is the father and Lesa Crosswhite is the mother of Preston Teel. They have collectively referred to themselves as “the Teels” in their Brief. The Court will do likewise.
Defendants argue that any attempt to assert that Steel was not an insured under the Policy at the time of the accident is baseless and point to summary judgment evidence to show that Steel was included in the original schedule of endorsements to the Policy. (Defs.’ Br. 1, n.1.)
On March 4, 2008, AISLIC moved to strike Defendants’ Exhibit 8 from Defendants’ Appendix [Doc. # 31]. Exhibit 8 is the full trial transcript of the testimony of Preston’s treating physician, Dr. Karen Johnston-Jones, obtained in the underlying litigation. AISLIC objects on relevance grounds. AISLIC’s Motion to Strike [#31] is DENIED. The Court is well able to determine what portions of the submitted Exhibit are relevant when reviewing this evidence.
The AISLIC Policy, being an umbrella policy, provided additional coverage for the underlying policies: one issued by Lexington Insurance Company and another issued by Texas Mutual. (Pl.’s App. 28 (schedule of underlying policies covered by the AISLIC Policy’s umbrella coverage)). It is unclear if any of the underlying policies provided coverage for the Teels’ injuries.
AISLIC does not specifically address the claims asserted by Jennings Teel and Lesa Crosswhite for their own damages suffered and how the TWCA affects those claims. Rather, AISLIC simply refers to all of them as “Teel” in its Brief. Although § 408.001 prevents claims by legal beneficiaries against an employer, it does not appear that Jennings Teel’s and Lesa Crosswhite’s claims are the type excluded by that section of the TWCA. See Texas Labor Code § 408.011.
The Court notes that the Tyler Court of Appeals appears to have concluded that negligence claims brought against a non-subscribing employer by its employee is an action to collect benefits under the TWCA. Kroger Co. v. Keng, 976 S.W.2d 882, 891 (Tex. App.—Tyler 1998), aff’d on other grounds, 23 S.W.3d 347 (Tex. 2000). However, this Court also notes that the Texas Supreme Court declined to adopt that reasoning. Keng, 23 S.W.3d at 640-42.
AISLIC makes no argument as to why an insurer could not preclude coverage with a provision that requires an insured to subscribe to the TWCA or face loss of coverage if an employee is injured.
An employer who chooses to be a non-subscriber may not assert the defenses of contributory negligence, assumption of risk, or negligence by a fellow employee. Tex. Labor Code § 406.033.
The Teels argue that AISLIC could have specifically and unambiguously excluded coverage for common-law claims by injured employees but chose not to do so. The Teels note that the Lexington Insurance Policy, a general liability policy covered by the umbrella Policy at issue here (see Pl.’s App. 28), contains a specific “Employer’s Liability” exclusion that unambiguously excludes coverage for bodily injury to an employee of the insured arising out of and in the course of employment or while performing duties relating to the insured’s business. (Defs.’ App. 162 (Lexington policy “Employer’s Liability” exclusion)). The Teels also provide summary judgment evidence that Lexington Insurance Company and AISLIC are subsidiaries of American International Group, Inc. (Defs.’ Br. 12 (citing Defs.’ App. 148)). They further contend that because the “Employer’s Liability” exclusion contained in the Lexington Policy comes immediately after a “Workers’ Compensation and Similar Laws” exclusion, it shows that insurers such as AISLIC’s affiliated company do not view the exclusions dealing with workers’ compensation laws as also excluding all employee on-the-job injury claims from coverage. The Teels reason that the Lexington Policy would not have found it necessary to add the additional “Employer Liability” exclusion after the “Workers’ Compensation and Similar Laws” exclusion if all employee on-the-job injuries were already excluded by the “Workers’s Compensation and Similar Laws” exclusion.