Evanston Insurance Company v. Gene by Gene, Ltd., — F.Supp.3d —- (2016)
2016 WL 102294
United States District Court,
S.D. Texas, Houston Division.
Evanston Insurance Company, Plaintiff,
v.
Gene by Gene, Ltd., Defendant.
Civil Action No. H–14–1842
|
Signed January 6, 2016

ORDER
DAVID HITTNER, United States District Judge
*1 Pending before the Court is Defendant Gene by Gene
Ltd.’s Motion for Summary Judgment (Document No. 21).
Having considered the motion, submissions, and applicable
law, the Court determines the motion should be granted.
I. BACKGROUND
This is an insurance coverage dispute. Defendant Gene
by Gene Ltd. (“Gene by Gene”) owns and operates
www.familytreedna.com, a genetic genealogy website. Users
of the website are offered the opportunity to test their
genetic information. Once users receive their DNA test
results they can analyze their genetic information to
learn more about their ancestry and connect with other
users whose results match in varying degrees. 1 Plaintiff
Evanston Insurance Company (“Evanston”) is Gene by
Gene’s insurer. Evanston issued four policies to Gene
by Gene: Policy Numbers SM–892198 and SM–898899
(“Professional Liability policies”), 2 and Policy Numbers
SM895587 and XS–800378 (“Excess Liability policies”) 3
(collectively, “Policies”). The Professional Liability policies
are duty to defend policies.
1 See Family Tree DNA, https://www.familytreedna.com
(last visited January 1, 2016).
2 Defendant Gene by Gene Ltd.’s Motion for
Summary Judgment, Document No. 21, Exhibit
A (Professional Liability Policy No. SM–892198)
[hereinafter Professional Liability Policy No. SM–
892198]; Defendant Gene by Gene Ltd.’s Motion
for Summary Judgment, Document No. 21, Exhibit
C (Professional Liability Policy No. SM–898899)
[hereinafter Professional Liability Policy No. SM–
898899].
3 Defendant Gene by Gene Ltd.’s Motion for Summary
Judgment, Document No. 21, Exhibits B (Excess
Liability Policy No. SM–8955870) [hereinafter Excess
Liability Policy No. SM–8955870]; Defendant Gene by
Gene Ltd.’s Motion for Summary Judgment, Document
No. 21, Exhibit D (Excess Liability Policy No. XS–
800378) [hereinafter Excess Liability Policy No. XS–
800378].
On May 15, 2014, Gene by Gene was sued by named plaintiff
Michael Cole (“Cole”), on behalf of himself and others,
in Cause Number 1:14–cv–004–SLG, styled Michael Cole,
individually and on behalf of all others similarly situated
v. Gene by Gene, Ltd. a Texas limited liability company d/
b/a Family Tree DNA, in the United States District Court
for the District of Alaska (the “Underlying Lawsuit”). 4
Cole alleges Gene by Gene improperly published his DNA
test results on its website without his consent. Cole claims
this practice violated Alaska’s Genetic Privacy Act, Alaska
Statute § 18.13.010 (“Genetic Privacy Act”), which prohibits
the disclosure of a person’s DNA analysis without written and
informed consent. When Gene by Gene demanded coverage
and a defense of the Underlying Lawsuit from Evanston,
Evanston refused based on an exclusion in the Policies titled
“Electronic Data and Distribution of Material in Violation of
Statutes” (“Exclusion”).
4 Defendant Gene by Gene Ltd.’s Motion for Summary
Judgment, Document No. 21, Exhibit E (Class Action
Complaint and Demand for Jury Trial) [hereinafter
Underlying Suit Complaint].
*2 On July 2, 2014, Evanston filed the present declaratory
judgment action, seeking a declaration from the Court that it
does not have to defend and/or indemnify Gene by Gene from
and against any claims or judgments in, or resulting from,
the Underlying Lawsuit. On August 29, 2014, Gene by Gene
answered and asserted its own counterclaims, requesting a
Evanston Insurance Company v. Gene by Gene, Ltd., — F.Supp.3d —- (2016)
© 2016 Thomson Reuters. No claim to original U.S. Government Works. 2
declaration from the Court that Evanston is required to defend
and indemnify Gene by Gene and claiming that Evanston
breached its contract and violated Chapter 542 of the Texas
Insurance Code. On August 28, 2015, Gene by Gene moved
for summary judgment.
II. STANDARD OF REVIEW
Summary judgment is proper when “there is no genuine
dispute as to any material fact and the movant is entitled to
a judgment as a matter of law.” FED.R.CIV.P. 56(a). The
court must view the evidence in a light most favorable to the
nonmovant. Coleman v. Hous. Indep. Sch. Dist., 113 F.3d
528, 533 (5th Cir.1997). Initially, the movant bears the burden
of presenting the basis for the motion and the elements of the
causes of action upon which the nonmovant will be unable
to establish a genuine issue of material fact. Celotex Corp.
v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d
265 (1986). The burden then shifts to the nonmovant to come
forward with specific facts showing there is a genuine issue
for trial. See FED.R.CIV.P. 56(c); Matsushita Elec. Indus.
Co. v. Zenith Radio Corp., 475 U.S. 574, 586–87, 106 S.Ct.
1348, 89 L.Ed.2d 538 (1986). “A dispute about a material
fact is ‘genuine’ if the evidence is such that a reasonable jury
could return a verdict for the nonmoving party.” Bodenheimer
v. PPG Indus., Inc., 5 F.3d 955, 956 (5th Cir.1993) (citation
omitted).
But the nonmoving party’s bare allegations, standing alone,
are insufficient to create a material issue of fact and defeat a
motion for summary judgment. Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 247–48, 106 S.Ct. 2505, 91 L.Ed.2d
202 (1986). Moreover, conclusory allegations unsupported
by specific facts will not prevent an award of summary
judgment; the plaintiff cannot rest on his allegations to get
to a jury without any significant probative evidence tending
to support the complaint. Nat’l Ass’n of Gov’t Emps. v.
City Pub. Serv. Bd. of San Antonio, 40 F.3d 698, 713 (5th
Cir.1994). If a reasonable jury could not return a verdict for
the nonmoving party, then summary judgment is appropriate.
Liberty Lobby, Inc., 477 U.S. at 248, 106 S.Ct. 2505.
The nonmovant’s burden cannot be satisfied by conclusory
allegations, unsubstantiated assertions, or “only a scintilla of
evidence.” Turner v. Baylor Richardson Med. Ctr., 476 F.3d
337, 343 (5th Cir.2007) (quoting Little v. Liquid Air Corp.,
37 F.3d 1069, 1075 (5th Cir.1994)). Furthermore, it is not the
function of the court to search the record on the nonmovant’s
behalf for evidence which may raise a fact issue. Topalian v.
Ehrman, 954 F.2d 1125, 1137 n. 30 (5th Cir.1992). Therefore,
“[a]lthough we consider the evidence and all reasonable
inferences to be drawn therefrom in the light most favorable
to the nonmovant, the nonmoving party may not rest on the
mere allegations or denials of its pleadings, but must respond
by setting forth specific facts indicating a genuine issue for
trial.” Goodson v. City of Corpus Christi, 202 F.3d 730, 735
(5th Cir.2000) (quoting Rushing v. Kansas City S. R.R. Co.,
185 F.3d 496, 505 (5th Cir.1999)).
III. LAW & ANALYSIS
Gene by Gene contends the claim in the Underlying
Lawsuit falls under its Advertising Injury and Personal Injury
coverage because it is for an injury that arises out of the
written publication of material that violates a person’s right of
privacy. Evanston contends the claim is excluded from that
coverage because it is brought pursuant to a statute that falls
under Section C of the Exclusion, which precludes coverage
for “any other statute, law, rule, ordinance, or regulation that
prohibits or limits the sending, transmitting, communication
or distribution of information or other material.” 5
5 Professional Liability Policy No. SM–892198, supra
note 2 at 14.
*3 The parties agree Texas law governs the rules of
insurance policy interpretation in this case. Test Masters
Educ. Servs., Inc. v. State Farm Lloyds, 791 F.3d 561, 564
(5th Cir.2015). To determine whether an insurer has a duty
to defend an insured from an underlying lawsuit, Texas
courts apply the “eight comers rule.” Id. “ ‘Under that rule,
courts look to the facts alleged within the four comers of the
[underlying] pleadings, measure them against the language
within the four comers of the insurance policy, and determine
if the facts alleged present a matter that could potentially
be covered by the insurance policy.’ ” Id. (quoting Ewing
Constr. Co. v. Amerisure Ins. Co., Inc., 420 S.W.3d 30, 33
(Tex.2014)). Courts must focus on the factual allegations
in the underlying pleadings rather than any asserted legal
theories or conclusions. Id. (citing Ewing, 420 S.W.3d at
33). Courts must “resolve ‘all doubts regarding the duty to
defend … in the insured’s favor.’ ” Id. (quoting Ewing, 420
S.W.3d at 33). If the underlying complaint “ ‘potentially
includes a covered claim, the insurer must defend the entire
suit.’ ” Id. (emphasis in original) (quoting Zurich Am. Ins. Co.
v. Nokia, Inc., 268 S.W.3d 487, 491 (Tex.2008)). The insured
has an initial burden to establish coverage under the terms
Evanston Insurance Company v. Gene by Gene, Ltd., — F.Supp.3d —- (2016)
© 2016 Thomson Reuters. No claim to original U.S. Government Works. 3
of the policy. Gilbert Texas Const., L.P. v. Underwriters
at Lloyd’s London, 327 S.W.3d 118, 124 (Tex.2010). Once
coverage is established, the insurer has the burden to show an
exclusion applies. Id.
“If only one party’s construction [of an insurance policy’s
language] is reasonable, the policy is unambiguous.” RSUI
Indemnity Co. v. The Lynd Co., 466 S.W.3d 113, 118
(Tex.2015). However, if both parties have reasonable
interpretations of the language, the policy is ambiguous.
Id. In that case, courts “must resolve the uncertainty by
adopting the construction that most favors the insured …
even if the construction urged by the insurer appears to be
more reasonable or a more accurate reflection of the parties’
intent.” Id. (emphasis added). A construction that renders
any portion of a policy illusory or “meaningless, useless, or
inexplicable” cannot be adopted by the court. Evanston Ins.
Co. v. ATOFINA Petrochemicals, Inc., 256 S.W.3d 660, 669
n. 27 (Tex.2008).
A. Coverage under the Policies
According to the complaint in the Underlying Lawsuit,
the sole claim asserted in the case is pursuant to Alaska’s
Genetic Privacy Act. That claim is based on the factual
allegations that Gene by Gene “made the results of [the
customers’] DNA analyses publicly available on its own
websites. [Gene by Gene] also disclosed Plaintiffs sensitive
information to third-party ancestry company RootsWeb.” 6
In addition, Gene by Gene “never obtained Plaintiff’s or the
Class’s informed written consent required by [the Genetic
Privacy Act] to make the results of their DNA analyses public
or to disclose sensitive information to third-parties, including
ancestry company RootsWeb … By making the results of their
DNA analyses publicly available and otherwise disclosing
the same to any third-parties as described herein, [Gene by
Gene] violated Plaintiff’s and the Class’s statutorily-protected
rights to privacy in their genetic information as set forth in
the Genetic Privacy Act … as well as their common law rights
to privacy.” 7
6 Underlying Suit Complaint, supra note 4 at 13.
7 Underlying Suit Complaint, supra note 4 at 13–14.
The Professional Liability policies provide coverage for
“Personal Injury and Advertising Injury Liability.” 8 Under
the Professional Liability policies, “Advertising injury”
means “injury … arising out of oral or written publication
of material that libels or slanders a person or organization
or a person’s or organization’s products, goods or operations
or other defamatory or disparaging material, occurring in the
course of the Named Insured’s Advertisement.” 9 “Personal
injury” is defined to include “oral or written publication
of material that violates a person’s right of privacy.” 10
Comparing the factual allegations within the four corners of
the Underlying Lawsuit and the four comers of the Policies,
the claim in the Underlying Suit falls within the definition of
Personal Injury because it includes the publication of material
—the DNA analysis—that allegedly violates a person’s right
to privacy.
8 Professional Liability Policy No. SM–892198, supra
note 2 at 2; Professional Liability Policy No. SM–
898899, supra note 2 at 2.
9 Professional Liability Policy No. SM–892198, supra
note 2 at 27; Professional Liability Policy No. SM–
898899, supra note 2 at 45.
10 Professional Liability Policy No. SM–892198, supra
note 2 at 30; Professional Liability Policy No. SM–
898899, supra note 2 at 45.
*4 The Professional Liability policies define “damages”
as “the monetary portion of any judgment, award or
settlement.” 11 Damages do not include “punitive or
exemplary damages … taxes, criminal or civil fines, or
attorney’s fees or penalties imposed by law … sanctions …
or the return of or restitution of fees, profits or charges for
services rendered.” 12 Fines, penalties, and taxes are “limited
to payments made to the government” and do not include
statutory damages that make up the monetary portion of a
judgment. Flagship Credit Corp. v. Indian Harbor Ins. Co.,
481 Fed.Appx. 907, 912 (5th Cir.2012). The relief requested
in the underlying lawsuit includes “an award of actual and
statutory damages of $5,000.” 13 This request falls under the
Policies’ definition of damages. Accordingly, the Court finds
Gene by Gene, as the insured, has met its burden to establish
coverage under the terms of the policy.
11 Professional Liability Policy No. SM–892198, supra
note 2 at 19; Professional Liability Policy No. SM–
898899, supra note 2 at 15–16.
12 Professional Liability Policy No. SM–892198, supra
note 2 at 19.
13 Underlying Suit Complaint, supra note 4 at 15.
Evanston Insurance Company v. Gene by Gene, Ltd., — F.Supp.3d —- (2016)
© 2016 Thomson Reuters. No claim to original U.S. Government Works. 4
B. Applicability of Exclusion
The Exclusion at issue in this case, included in all four
policies, precludes coverage for a claim based upon or arising
out of any violation of:
(a) the Telephone Consumer Protection Act of 1991
(TCPA) and amendments thereto or any similar or
related federal or state statute, law, rule, ordinance or
regulation;
(b) the CAN–SPAM Act of 2003 and amendments thereto
or any similar or related federal or state statute, law, rule,
ordinance, or regulation; or
(c) any other statute, law, rule, ordinance, or regulation
that prohibits or limits the sending, transmitting,
communication or distribution of information or other
material. 14
Evanston contends the claim in the Underlying Lawsuit falls
under the plain language of Section C of the Exclusion
because it is brought pursuant to a statute—the Genetic
Privacy Act—that prohibits the transmitting, communication
or distribution of information or other material—namely,
the public disclosure of a person’s DNA analysis on Gene
by Gene’s website and to other third-parties like RootsWeb.
Gene by Gene contends this construction of Section C is too
broad and is unreasonable in light the rest of the Exclusion
and the entire policy.
14 Professional Liability Policy No. SM–892198, supra
note 2 at 14; Excess Liability Policy No. SM–8955870,
supra note 3 at 5; Professional Liability Policy No. SM–
898899, supra note 2 at 7; Excess Liability Policy No.
XS–800378, supra note 3 at 12.
Specifically, Gene by Gene contends the canon of
construction of ejusdem generis should apply to Section
C. According to that canon, “Where general words follow
specific words in a statutory enumeration, the general words
are [usually] construed to embrace only objects similar
in nature to those objects enumerated by the preceding
specific words.” Yates v. United States, –––U.S. ––––, 135
S.Ct. 1074, 1086, 191 L.Ed.2d 64 (2015) (alteration in
original). The Telephone Consumer Protection Act (“TCPA”)
referenced in Section A of the Exclusion generally regulates
the use of unsolicited telephone calls and fax transmissions
to consumers. 15 Similarly, the CAN–SPAM Act of 2003
(“CAN–SPAM”) referenced in Section B of the Exclusion
generally regulates the use of unsolicited, fraudulent, abusive,
and deceptive emails to consumers. 16 Accordingly, Gene by
Gene contends Section C also refers generally to other forms
of unsolicited communication to consumers “that intrude[ ]
into one’s seclusion.” 17
15 See 47 U.S.C. § 227; Mims v. Arrow Fin. Servs., LLC,
–––U.S. ––––, 132 S.Ct. 740, 745, 181 L.Ed.2d 881
(2012).
16 See 15 U.S.C. §§ 7703, 7704; White Buffalo Ventures,
LLC v. Univ. of Tex. at Austin, 420 F.3d 366, 371 (5th
Cir.2005).
17 Defendant Gene by Gene Ltd.’s Motion for Summary
Judgment, Document No. 21 at 10.
*5 In response, Evanston contends Gene by Gene’s reliance
on ejusdem generis is misplaced because the “intent”
of each statute is different. 18 For example, the TCPA
regulates “unsolicited, automated” telephone calls and fax
transmissions, while the CAN–SPAM Act regulates “false or
misleading unsolicited e-mail.” 19 However, while the two
statutes regulate different forms of communication, the intent
—to protect consumers from unsolicited communication that
invades their seclusion—is the same. In addition, Gene by
Gene’s construction does not render the “or any similar
or related” portions of Sections A and B redundant. It is
reasonable to construe that language as meaning any similar
or related statutes or laws that govern communication over
the phone or fax machine (Section A) or email (Section B),
while Section C covers other, similarly unsolicited forms of
communication that may be regulated by statute, law, rule,
ordinance, or regulation. Accordingly, the Court finds Gene
by Gene’s construction of the Exclusion reasonable. 20
18 Evanston Insurance Company’s Response to Gene
by Gene, Ltd.’s Motion for Summary Judgment and
Memorandum in Support Thereof Document No. 25 at
13.
19 Evanston Insurance Company’s Response to Gene
by Gene, Ltd.’s Motion for Summary Judgment and
Memorandum in Support Thereof, Document No. 25 at
13.
20 In its motion for summary judgment, Gene by Gene
contends Texas Department of Insurance (“TDI”) orders
support its construction of the Exclusion, citing to,
inter alia, approved forms for exclusions concerning the
TCPA and CAN–SPAM Act. Defendant Gene by Gene
Ltd.’s Motion for Summary Judgment, Document No. 21
Evanston Insurance Company v. Gene by Gene, Ltd., — F.Supp.3d —- (2016)
© 2016 Thomson Reuters. No claim to original U.S. Government Works. 5
at 12–19. In response, Evanston contends the evidence
Gene by Gene cites are not actually final “orders” of the
TDI, but are “correspondence and certificates from the
TDI which show certain endorsements were filed with
that administrative agency for the purpose of obtaining
use approval.” Evanston Insurance Company’s Response
to Gene by Gene, Ltd.’s Motion for Summary Judgment
and Memorandum in Support Thereof Document No. 25
at 14. Because the Court is able to determine that the
Exclusion is at the very least ambiguous and that Gene
by Gene’s construction of it is reasonable without relying
on the TDI evidence, the Court need not address whether
the TDI documents are in fact final “orders.”
In addition, Gene by Gene contends Evanston’s construction
is unreasonable because it would render illusory the
Advertising Injury coverage, which includes claims arising
out of the written publication of material that libels or slanders
a person, and the Personal Injury coverage, which includes
claims arising out of the written publication of material that
violates a person’s right to privacy. In response, Evanston
contends
the policies would still apply to the
many more traditional defamation and
advertising injuries so long as there
is [no] statute, law, rule, ordinance
or regulation that applied to the
type of information being published.
Thus, common law claims for [libel],
slander, invasion of privacy and other
forms of defamation would still be
covered under the advertising injury
provisions of the policies as long as
there is no statute prohibiting the act
complained about.” 21
However, as Gene by Gene points out, common law claims,
while not codified in a statute, are still based on “law” and
thus may still be excluded under Evanston’s construction. 22
In addition, Gene by Gene points to states such as Texas
where the “traditional defamation” injuries, like libel and
false disparagement of goods, services, or business are in fact
regulated by statute. 23 In that case, Evanston’s construction
would render a policy that explicitly includes coverage
for libel illusory. However, even if the Court also found
Evanston’s construction reasonable, the Exclusion would be
ambiguous and the Court would still be required to apply
the alternative reasonable construction propagated by the
insured, Gene by Gene.
21 Evanston Insurance Company’s Response to Gene
by Gene, Ltd.’s Motion for Summary Judgment and
Memorandum in Support Thereof, Document No. 25 at
15 (emphasis added).
22 See COMMON LAW, Black’s Law Dictionary (10th
ed.2014) (defining “common law” as “the body of law
derived from judicial decisions, rather than from statutes
or constitutions”).
23 See TEX. CIV. PRAC. & REM. CODE § 73.001, et
seq (elements of libel); TEX. BUS. & COM. CODE §
17.46(b)(8) (Texas Deceptive Trade Practices Act).
*6 Applying the claim in the Underlying Suit to the
Exclusion as construed by Gene by Gene, the Court finds
the claim does not fall under the Exclusion. The Genetic
Privacy Act does not concern unsolicited communication to
consumers, but instead regulates the disclosure of a person’s
DNA analysis. The facts upon which the claim is based
deal solely with Gene by Gene’s alleged improper disclosure
of DNA test results on its public website and to thirdparties.
The facts alleged in the complaint do not address
the type of unsolicited seclusion invasion contemplated by
the Exclusion. Accordingly, the Underlying Lawsuit is not
excluded from Gene by Gene’s policy coverage. Because
Gene by Gene has met its burden to establish that the claim
in the Underlying Lawsuit is covered by the Policies and
Evanston did not establish that the claim is excluded, the
Court finds Evanston has a duty to defend and indemnify
Gene by Gene in the Underlying Lawsuit.
C. Counterclaims
Gene by Gene alleges Evanston breached its contract when
it refused to defend and indemnify Gene by Gene pursuant
to the Policies. The Court has already determined Evanston
had a duty to defend and indemnify Gene by Gene under the
Policies. 24 Therefore, Evanston breached its contract when it
refused coverage. Accordingly, summary judgment is granted
as to Gene by Gene’s breach of contract counterclaim.
24 See also Professional Liability Policy No. SM–892198,
supra note 2 at 1; Professional Liability Policy No. SM–
898899, supra note 2 at 1.
Gene by Gene alleges Evanston violated Chapter 542 of the
Texas Insurance Code when it delayed in paying Gene by
Gene’s defense costs. That chapter “may be applied when an
insurer wrongfully refuses to promptly pay a defense benefit
owed to the insured.” Lamar Homes, Inc. v. Mid–Continent
Cas. Co., 242 S.W.3d 1, 20 (Tex.2007). See also Trammell
Evanston Insurance Company v. Gene by Gene, Ltd., — F.Supp.3d —- (2016)
© 2016 Thomson Reuters. No claim to original U.S. Government Works. 6
Crow Residential Co. v. Va. Sur. Co., Inc., 643 F.Supp.2d
844, 859 (N.D.Tex.2008) (Fitzwater, J.) (holding an insurer
is liable under the statute when “it wrongfully rejects its
defense obligation.”). An insurer is liable under the statute if
it wrongfully delays payment for more than 60 days. TEX.
INS. CODE § 542.058. The Court has already determined
Evanston had a duty to defend under the Policies. 25 Evanston
delayed more than 60 days to pay Gene by Gene’s defense.
Accordingly, Evanston is liable under Chapter 542 of the
Texas Insurance Code and thus summary judgment is granted
as to Gene by Gene’s counterclaim.
25 See also Professional Liability Policy No. SM–892198,
supra note 2 at 1; Professional Liability Policy No. SM–
898899, supra note 2 at 1.
IV. CONCLUSION
Based on the foregoing, the Court hereby
ORDERS that Defendant Gene by Gene Ltd.’s Motion for
Summary Judgment (Document No. 21) is GRANTED. The
Court further
ORDERS that Defendant Gene by Gene must file its brief
and documentation regarding the calculation of its damages,
attorneys’ fees, and prejudgment interest by January 27,
2016. The Court further
ORDERS that Plaintiff Evanston must submit its response to
Defendant Gene by Gene’s brief and calculation by February
17, 2016.
All Citations
— F.Supp.3d —-, 2016 WL 102294

Williams, McClure & Parmelee is dedicated to high quality legal representation of businesses and insurance companies in a variety of matters. We are experienced Fort Worth, Texas civil litigation attorneys in Tarrant County who know Texas courts and Texas law. For more information, please contact the law firm at 817-335-8800. The firm’s office location is 5601 Bridge Street, Suite 300, Fort Worth, Texas 76112.

Likens v. Hartford Life and Acc. Ins. Co., — F.Supp.2d —- (2011)

United States District Court,
S.D. Texas,
Houston Division.
Cheryl LIKENS, Plaintiff,
v.
HARTFORD LIFE AND ACCIDENT
INSURANCE COMPANY, Defendant.
Civil Action No. H–10–155. June 29, 2011.

Opinion
MEMORANDUM OPINION AND ORDER
GRAY H. MILLER, District Judge.
*1 This is a removal action wherein plaintiff seeks payment
of accidental death benefits under a policy of insurance.
Before the court are the parties’ cross-motions for summary
judgment. Dkts. 10, 11. After consideration of the motions,
responses, replies, exhibits, and the applicable law, plaintiff’s
motion (Dkt.10) is DENIED and defendant’s motion (Dkt.11)
is GRANTED.
BACKGROUND
Wesley Wood Vincent (“Vincent”) fell at his home on the
evening of February 23, 2008, and suffered injuries to his
cervical spine. Dkt. 1–1 at 10. He died as a result of that
injury on February 27, 2008. Id. The discharge summary from
the hospital listed his cause of death as “anoxic brain injury
secondary to cardiopulmonary arrest.” Id.
Vincent had a group life insurance policy with defendant
Hartford Life and Accident Insurance Company (“Hartford”),
obtained through Vincent’s employer, which provided a
benefit for “accidental” death. Dkt. 10–1 at 10. Plaintiff
Cheryl Likens is the listed beneficiary on the policy, and
she sought payment of the benefits. Id. Hartford denied the
claim due to Vincent’s intoxication at the time of his injury.
Dkt. 13–3 at 1–3. More specifically, Hartford relied upon
provisions of the Policy requiring that the injury must arise
from an accident “independently of all other causes,” and that
the policy excludes injuries “sustained as a result of being
legally intoxicated from the use of alcohol.” Dkt. 13–3 at
1–2. In Hartford’s view, Vincent’s death was “as a result of
being legally intoxicated from the use of alcohol,” Vincent
therefore “did not suffer bodily injury independent of all other
causes,” and no benefits were due. Id. at 2–3. Plaintiff sued in
state court to recover under the policy, and Hartford removed
the matter to this court on January 18, 2010, on the basis of
diversity of citizenship.
RELEVANT FACTS
1. The insurance policy.
The insurance policy in this case is a Group Benefits policy
issued by Hartford (“Policy”). Dkt. 10 at 12–29. The Policy,
which the parties agree was issued in August, 2004, provides
for an accidental death and dismemberment benefit for an
injury leading to death in the maximum amount of $300,000.
Dkt. 12 at 5–9. 1 An “injury” is defined as “bodily injury
resulting directly from accident and independently of all other
causes which occurs while [Vincent] is covered under the
Policy. Loss resulting from: a) sickness or disease …; or
b) medical or surgical treatment of a sickness or disease;
is not considered as resulting from injury.” Id. at 5. The
“Exclusions” section of the Policy provides in relevant part
as follows:
1 Plaintiff asserts that application of other applicable
Policy provisions results in a death benefit of $263,500
for Vincent. Dkt. 10 at 30. Hartford asserts that the death
benefit available for a covered injury is $250,000. Dkt.
11 at 3. Resolution of this dispute is not necessary to the
court’s ruling on the pending motions.
The Policy does not cover any loss resulting from … 8.
Injury sustained as a result of being legally intoxicated
from the use of alcohol. (For residents of Minnesota,
Exclusion 8 is deleted and is replaced by the following:
8. Injury sustained while operating a motor vehicle while
legally intoxicated from the use of alcohol.)
*2 Id. at 6.
2. Circumstances of Vincent’s death.
Likens v. Hartford Life and Acc. Ins. Co., — F.Supp.2d —- (2011)
© 2011 Thomson Reuters. No claim to original U.S. Government Works. 2
Vincent drank alcohol at a local bar on February 22, 2008,
and he arrived back home at approximately 11:30 p.m. Dkt.
12 at 14. An EMS report contains the following description
of events:
[F]amily state that [Vincent] went out drinking tonight and
that he was brought home by the bartender around 11 or
11:30. [Vincent’s] wife states that [he] was very intoxicated
and keep [sic] falling down, she states that she tried to help
him, but he told her that he was fine and that he was going
to sit out on the porch … her granddaughter came home and
found [Vincent] between the bbq pit and the hedge … she
moved him onto his back … [and] realized that he was not
breathing….
Dkt. 12 at 19. A hospital report confirms that plaintiff reported
an initial fall by Vincent, and that she also reported that
Vincent was unable to make it from the yard into the house.
Dkt. 12 at 26. A sheriff’s report for that same incident states
that it was Vincent’s daughter, Kayla Hutson, who later found
him on the ground, but she reported she was “not alarmed
[be]cause this was a regular occurrence.” Dkt. 12 at 32.
Vincent was transported to the hospital, and his serum blood
alcohol content shortly after the incident was reported as
being .328 mg/dl. Id. at 16. He never regained consciousness,
and his life support was removed on February 27, 2008. Dkt.
12 at 37. The cause of death was reported as “anoxic brain
injury secondary to cardiopulmonary arrest.” Id.
A Certificate of Death dated March 17, 2008, lists the
“immediate cause” of his death as “complications following
blunt trauma with fracture of cervical spine,” and the “manner
of death” is listed as “accident.” Dkt. 10 at 32. Also listed
under “significant conditions contributing to death but not
resulting in the underlying cause” is “chronic ethanolism.” Id .
ANALYSIS
I. Summary Judgment
A timely motion for summary judgment shall be granted “if
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 a judgment as a matter
of law.” FED.R.CIV.P. 56(c); see also Carrizales v. State
Farm Lloyds, 518 F.3d 343, 345 (5th Cir.2008). Upon a
defendant’s motion for summary judgment, the plaintiff “must
set forth specific facts showing that there is a genuine issue
for trial. If he does not so respond, summary judgment, if
appropriate, shall be entered against him.” FED.R.CIV.P.
56(e). Ultimately, “[w]here the record taken as a whole could
not lead a rational trier of fact to find for the nonmoving
party, there is no ‘genuine issue for trial.’ “ Matsushita Elec.
Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct.
1348 (1986). An issue is “material” if its resolution could
affect the outcome of the action. Burrell v. Dr. Pepper/Seven
Up Bottling Group, Inc., 482 F.3d 408, 411 (5th Cir.2007).
“[A]nd a fact is genuinely in dispute only if a reasonable jury
could return a verdict for the non-moving party.” Fordoche,
Inc. v. Texaco, Inc., 463 F.3d 388, 392 (5th Cir.2006).
*3 The moving party bears the initial burden of informing
the court of all evidence demonstrating the absence of a
genuine issue of material fact. Celotex Corp. v. Catrett, 477
U.S. 317, 323, 106 S.Ct. 2548 (1986). Only when the moving
party has discharged this initial burden does the burden shift
to the non-moving party to demonstrate that there is a genuine
issue of material fact. Id. at 322. If the moving party fails
to meet this burden, then it is not entitled to a summary
judgment, and no defense to the motion is required. Id.
“For any matter on which the non-movant would bear the
burden of proof at trial …, the movant may merely point to the
absence of evidence and thereby shift to the non-movant the
burden of demonstrating by competent summary judgment
proof that there is an issue of material fact warranting trial.”
Transamerica Ins. Co. v. Avenell, 66 F.3d 715, 718–19
(5th Cir.1995); see also Celotex, 477 U.S. at 323–25. To
prevent summary judgment, “the non-moving party must
come forward with ‘specific facts showing that there is a
genuine issue for trial.’ “ Matsushita Elec. Indus. Co., 475
U.S. at 587 (quoting FED.R.CIV.P. 56(e)).
When considering a motion for summary judgment, the court
must view the evidence in the light most favorable to the
non-movant and draw all justifiable inferences in favor of
the nonmovant. Envtl. Conservation Org. v. City of Dallas,
Tex., 529 F.3d 519, 524 (5th Cir.2008). The court must review
all of the evidence in the record, but make no credibility
determinations or weigh any evidence; disregard all evidence
favorable to the moving party that the jury is not required
to believe; and give credence to the evidence favoring the
non-moving party as well as to the evidence supporting
the moving party that is uncontradicted and unimpeached.
Moore v. Willis Ind. Sch. Dist., 233 F.3d 871, 874 (5th
Cir.2000). However, the non-movant cannot avoid summary
judgment simply by presenting “conclusory allegations and
denials, speculation, improbable inferences, unsubstantiated
Likens v. Hartford Life and Acc. Ins. Co., — F.Supp.2d —- (2011)
© 2011 Thomson Reuters. No claim to original U.S. Government Works. 3
assertions, and legalistic argumentation.” See TIG Ins. Co. v.
Sedgwick James of Wash., 276 F.3d 754, 759 (5th Cir.2002);
see also Little v. Liquid Air Corp., 37 F.3d 1069, 1075
(5th Cir.1994) (en banc). By the same token, the moving
party will not meet its burden of proof based on conclusory
“bald assertions of ultimate facts.” Gossett v. Du–Ra–Kel
Corp., 569 F.2d 869, 872 (5th Cir.1978); see also Galindo v.
Precision Amer. Corp., 754 F.2d 1212, 1221 (5th Cir.1985).
II. Contract Interpretation
“Texas courts interpret insurance policies according to the
rules of contract construction.” de Laurentis v. U.S. Auto.
Ass’n, 162 S.W.3d 714, 721 (Tex.App.-Houston [14th Dist.]
2005, pet. denied). The primary objective of the court is
to ascertain the parties’ intent, as expressed in the written
instrument. See Forbau v. Aetna Life Ins. Co., 876 S.W.2d
132, 133 (Tex.1994). “[T]he parties’ intent is governed by
what they said, not by what they intended to say but did
not.” Nautilus Ins. Co. v. Country Oaks Apartments, Ltd., 566
F.3d 452, 455 (5th Cir.2009) (quoting Fiess v. State Farm
Lloyds, 202 S.W.3d 744, 746 (Tex.2006)) (internal quotation
omitted).
*4 If an insurance policy is worded so that it can be
given a definite meaning or certain legal meaning, then
the policy is not ambiguous and is construed by the court
as a matter of law. Am. Mfrs. Mut. Ins. Co. v. Schaefer,
124 S.W.3d 154, 157 (Tex.2003). An ambiguity exists
where a policy is susceptible to more than one meaning.
Coker v. Coker, 650 S.W.2d 391, 393 (Tex.1983). Courts
interpreting contractual provisions give terms their plain,
ordinary, and generally accepted meanings, unless otherwise
defined by the parties. “ ‘Both the insured and the insurer
are likely to take conflicting views of coverage, but neither
conflicting expectations nor disputation is sufficient to create
an ambiguity.’ “ Nat’l Union Fire Ins. Co. of Pittsburgh, PA
v. U.S. Liquids, Inc., 271 F.Supp.2d 926, 932 (S.D.Tex.2003)
(quoting Forbau, 876 S.W.2d at 134). “[I]f, and only if,
the court finds an ambiguity in the contract provisions,
particularly in exclusionary clauses, the court should construe
the policy strictly against the insurer.” Nat’l Union Fire Ins.
Co. of Pittsburgh, PA, 271 F.Supp.2d at 932; see also Waffle
House, Inc. v. Travelers Indem. Co. of Ill., 114 S.W.3d
601, 607 (Tex.App.-Ft. Worth 2003, pet. denied) (cautioning
that exclusionary provisions “must be clearly expressed and
must not be ambiguously worded”). And, “if the insured’s
construction of an exclusionary provision is reasonable, it
must be adopted, even if the insurer’s construction is more
reasonable.” Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 271
F.Supp.2d at 931.
Under Texas law, an insured has the burden of establishing
coverage under the terms of an insurance policy. Gilbert Tex.
Constr., L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d
118, 124 (Tex.2010). If the insured proves coverage, then to
avoid liability the insurer must prove that the loss is within an
exclusion. Id. If the insurer proves that an exclusion applies,
the burden shifts back to the insured to show that an exception
to the exclusion brings the claim back within coverage. Id.
III. Application
In this case, no reasonable jury could find facts that would
avoid the intoxication exclusion of the Policy. 2 The facts of
this case clearly establish that Vincent’s intoxication on the
night he fell in his front yard is the proximate cause of his
death, and this prevents plaintiff from recovering under the
Policy.
2 The court will not, therefore, address Hartford’s
argument that plaintiff failed to establish that Vincent’s
death was caused by an accident independent of other
causes.
“The Policy does not cover any loss resulting from … [i]njury
sustained as a result of being legally intoxicated from the use
of alcohol.” Dkt. 12 at 6. Hartford’s evidence conclusively
establishes that the injuries Vincent sustained on February
23, 2008, and which led to his death, were caused by his
extreme intoxication. Plaintiff asserts that the autopsy report
on Vincent’s body discounts alcohol consumption as a cause
of his death. Plaintiff’s argument is premised upon a form
where “chronic ethanolism” is listed in box pre-labeled for
“significant conditions contributing to death but not resulting
in the underlying cause.” Dkt. 10 at 32. A review of the
more complete report of the findings, however, reveals that
the medical examiner made no finding that intoxication did
not cause the injuries. Dkt. 13–1 at 2–9. In fact, the medical
examiner’s notes reflect that the “blunt force trauma” occurred
because “[d]ecedent fell at home while intoxicated and hit his
head on a barbecue pit.” Id. at 9. Thus, the medical examiner
did not make any finding that would permit a jury to conclude
that intoxication did not cause Vincent’s injuries. Indeed, such
a finding is compelled by the record evidence.
*5 The sole question remaining, then, is one of interpretation
of the exclusion at issue. More specifically, what is meant by
the term “legally intoxicated” as used in the Policy? Plaintiff
asserts that this language is ambiguous and, accordingly,
Likens v. Hartford Life and Acc. Ins. Co., — F.Supp.2d —- (2011)
© 2011 Thomson Reuters. No claim to original U.S. Government Works. 4
presents her own proposed definition. There is no challenge to
whether Vincent met the legal definition in terms of the level
of his intoxication. Indeed, the record reflects that Vincent
was approaching the level of blood alcohol content that is
considered medically “toxic.” Dkt. 12 at 16. Rather, plaintiff
points to Hartford’s reliance in its briefing on the definition
of legal intoxication from the Texas Penal Code, and asserts
that “legal intoxication” therefore necessarily requires that
Vincent be not only intoxicated, but intoxicated in a legally
relevant fashion. Dkt. 10 at 9. More specifically, the exclusion
would only apply in plaintiff’s view if Vincent were driving,
or otherwise “operating a motor vehicle, motorboat or vessel”
in violation of Texas law. Id.
Hartford responds that there is no indication in the Policy that
intoxication must involve a violation of Texas law, or that
operation of a motor vehicle is required for such a finding.
Indeed, Hartford is correct. In fact, the exclusion at issue is
immediately followed in the Policy by an alternate version
of the exclusion applicable only in Minnesota and which
specifically limits the exclusion to injuries sustained while
“operating a motor vehicle while legally intoxicated from the
use of alcohol.” Dkt. 12 at 6. Thus, there is no support for
plaintiff’s argument in the language of the Policy itself.
For purposes of Texas law, “intoxicated” is defined as:
(A) not having the normal use of mental or physical
faculties by reason of the introduction of alcohol,
a controlled substance, a drug, a dangerous drug, a
combination of two or more of those substances, or any
other substance into the body; or
(B) having an alcohol concentration of 0.08 or more.
V.T.C.A., Penal Code § 49.01 (emphasis added). While
Hartford relies upon this definition, drawn from the Texas
Penal Code, for purposes of establishing a definition
of “legal intoxication” in the Policy exclusion, Hartford
points out that Texas law also provides for similar
definitions of “intoxicated” for determining issues in workers’
compensation cases, Tex. Labor Code § 401.103, and for
determining when a customer may no longer be served
alcoholic beverages. Tex. Admin. Code § 50.2. This broad
application of the definition of “intoxicated” in Texas law
distinguishes cases such as MacDonald v. Unicare Life
& Health Ins. Co., No. 3:07–0345, 2008 WL 169142
(S.D.W.Va. Jan. 18, 2008) and cases cited therein where the
state law referenced in, or applicable to, a policy exclusion
required an adjudication or a finding that the intoxication
was actually in violation state law. Here, Texas defines
“intoxicated” in more than just a criminal context, and the
court finds no basis to read into the Policy such an additional
provision.
*6 Not every difference in interpretation of an insurance
policy amounts to an ambiguity. Kelley–Coppedge, Inc. v.
Highlands Ins. Co., 980 S.W.2d 462, 465 (Tex.1998). Here,
the court does not perceive an ambiguity in the Policy as
written. The exclusion applies if Vincent’s death was caused
by his being “legally intoxicated,” i.e., being “intoxicated”
as that term is defined in Texas law. Texas law provides a
uniform definition of “intoxicated” that Vincent easily met at
the time he fell and struck his head.
And, in any event, even if some ambiguity existed in
the exclusionary language, an insured’s construction of the
exclusion will only be adopted if it is reasonable. Nat’l Union
Fire Ins. Co. of Pittsburgh, PA, 271 F.Supp.2d at 931. In
this case, there is simply no basis for reading into the Policy
exclusion an additional requirement that Vincent not only be
impaired as described in Texas law, but that he also have been
committing a crime.
Finally, plaintiff argues in the alternative that it is improper to
utilize a definition of intoxication drawn specifically from the
Texas Penal Code unless there was an express adoption of that
standard in the Policy. This is a potential ambiguity, however,
that does not benefit plaintiff. A contractual clause that is
ambiguous as applied to certain facts may be unambiguous as
applied to others. State Farm Fire and Cas. Co. v. Vaughan,
968 S.W.2d 931, 934 (Tex.1998). Vincent met any definition
of “intoxicated” during the relevant time frame. Choosing one
that differs slightly from the one found in the Texas Penal
Code would not avail plaintiff in this case.
CONCLUSION
After consideration of the motions, responses, replies,
exhibits, and the applicable law, plaintiff’s motion for
summary judgment (Dkt .10) is DENIED, and defendant’s
motion for summary judgment (Dkt.11) is GRANTED.

Williams, McClure & Parmelee is dedicated to high quality legal representation of businesses and insurance companies in a variety of matters. We are experienced Fort Worth, Texas insurance defense and contract law attorneys in Tarrant County who know Texas courts and Texas law. For more information, please contact the law firm at 817-335-8800. The firm’s office location is 5601 Bridge Street, Suite 300, Fort Worth, Texas 76112.

Court of Appeals of Texas,Houston (1st Dist.).

MEMC ELECTRONIC MATERIALS, INC., and MEMC Pasadena, Inc., Appellants

v.

ALBEMARLE CORPORATION, Lexington Insurance Co., and Travelers Property Casualty Group, Appellees.

No. 01-05-00420-CV.

Feb. 15, 2007.

Justices TAFT, ALCALA, and HANKS.

OPINION

ELSA ALCALA, Justice.

Appellants, MEMC Electronic Materials and MEMC Pasadena (collectively MEMC), appeal the trial court’s order that granted a motion for partial summary judgment urged by appellees, Albemarle Corporation and its insurers, Lexington Insurance and Travelers Property Casualty Group, and that denied MEMC’s cross-motion for partial summary judgment.FN1 After Albemarle indemnified Ethyl Corporation for claims paid by Ethyl to three people who were injured in a fire at a manufacturing plant, Albemarle sought indemnification from MEMC for Albemarle’s payment to Ethyl. MEMC refused to indemnify Albemarle, contending that the Asset Purchase Agreement between MEMC and Albemarle does not require the indemnification. In a single issue on appeal that challenges the trial court’s rendition of summary judgment in favor of Albemarle, MEMC asserts three reasons that the trial court should have rendered judgment in its favor. First, MEMC contends that Albemarle’s right to obtain indemnification from MEMC under the Asset Purchase Agreement was not triggered by the claims against Ethyl because every claim for which Ethyl was held liable arose out of Ethyl’s design and operation of the plant prior to the closing date of the Asset Purchase Agreement. Second, MEMC asserts that the Ethyl Indemnity Agreement was not an obligation that it assumed under the terms of the Asset Purchase Agreement. Third, MEMC states that Albemarle’s claim for indemnity is unenforceable under Texas and Virginia law. Albemarle replies by asserting that its indemnification of Ethyl was required under Virginia law, that the indemnification provision of the Asset Purchase Agreement is not modified by any other part of the agreement, and that the indemnification’s before-and-after nature provides for the indemnification that it seeks here.FN2

FN1. The trial court granted the parties’ Joint Motion to Sever and Abate the damages portion of the case, rendering the grant of partial summary judgment a final, appealable judgment.

FN2. Both parties filed post-submission supplemental briefs with this Court. We allow this supplementation in accordance with Rule 38 .7 of the Texas Rules of Appellate Procedure. See Tex.R.App. P. 38.7 (“A brief may be amended or supplemented whenever justice requires, on whatever reasonable terms the court may prescribe.”)

Considering the entire agreement and all individual provisions in the context of the whole instrument, we conclude that the Asset Purchase Agreement does not obligate MEMC to indemnify Albemarle for its payment to Ethyl for Ethyl’s liability for injuries caused by a fire at the plant. We do not reach the issue of whether the laws of Texas and Virginia make the indemnity agreement unenforceable as matter of law. We reverse and render judgment in favor of MEMC.

Background

Ethyl designed and built a polysilicon manufacturing plant located in Pasadena, Texas. In 1994, Ethyl created Albemarle as a separate company and transferred various of its businesses, including the plant, to Albemarle’s ownership and control. The transfer was under a “Reorganization and Distribution Agreement.” Ethyl and Albemarle also entered into an “Indemnification Agreement,” under which Albemarle agreed to “indemnify, defend and hold harmless Ethyl … from and against any and all Indemnifiable Losses of the Ethyl Indemnitees arising out of or due to the failure or alleged failure of Albemarle or any of its Affiliates to pay, perform, or otherwise discharge in due course any of the Albemarle Liabilities.” The agreements between Ethyl and Albemarle are governed by the laws of the state of Virginia.

In 1995, Albemarle sold the plant to MEMC pursuant to an “Asset Purchase Agreement” that is governed by Texas law. The closing date for the agreement was July 31, 1995. Under a separate agreement, MEMC and Albemarle agreed that Albemarle would continue to operate the plant.

The Asset Purchase Agreement describes the transfer of the plant and other assets and liabilities in Sections 3.3 and 3.4. Some assets and liabilities were specifically excluded from the transfer, and only certain liabilities were assumed by MEMC. Section 3.4(b) specifies that MEMC “shall not assume any other Liabilities of Seller whatsoever” except “those Liabilities specifically assumed” in Section 3.4(a). Section 3.4(a) does not mention the agreement between Ethyl and Albemarle, nor was that agreement a contract that was assumed by MEMC in the accompanying Schedule 3.4(a)(i). The agreement further specified that MEMC did not assume any liability that results or arises from the operation of the plant prior to the closing date.

Albemarle made certain representations and warranties to MEMC. Under Section 4.16, labeled “Contracts and Commitments,” Albemarle represented that, except as set forth in Schedule 4.16, it was “not a party to” and the transferred assets “are not bound by” and the Assumed Obligations “shall not include, any written or oral, formal or informal … agreements between or among Seller and any Affiliate of Seller ….“ Schedule 4.16 did not mention the indemnity agreement between Ethyl and Albemarle.

The Asset Purchase Agreement between Albemarle and MEMC included an indemnity provision. Generally speaking, depending on whether the damages arose out of the operation of the plant “prior to the closing date” or “on or after the closing date,” MEMC would indemnify Albemarle for the damages, or Albemarle would indemnify MEMC for the damages. In Section 7.3, Albemarle agreed to indemnify MEMC from and against all damages incurred by MEMC directly or indirectly by reason of or resulting from liabilities, obligations or claims, with respect to the plant arising out of operations of the plant prior to the Closing Date. Similarly, Section 7.4 provided that MEMC would indemnify Albemarle from and against all damages asserted against, resulting to, imposed upon or incurred by Albemarle, directly or indirectly by reason of or resulting from liabilities, obligations or claims with respect to the plant arising out of the operations of the plant on or after the Closing Date.

In 1996, three Albemarle employees were injured when a fire broke out at the plant. The employees, collectively referred to as the the Damewood plaintiffs, filed a lawsuit against a number of parties, including Ethyl and MEMC.FN3 Albemarle, which carried worker’s compensation coverage, was not subject to suit. MEMC settled with the Damewood plaintiffs. Of the parties relevant to the present case, only Ethyl went to trial in the underlying litigation. Pursuant to the agreement between Ethyl and Albemarle, Albemarle defended Ethyl in the Damewood litigation. At the close of the trial, Ethyl was the only remaining defendant, and a jury rendered a verdict in excess of six-and-a-half million dollars against Ethyl. Ethyl appealed, and while the appeal was pending, it settled with the Damewood plaintiffs for approximately five million dollars. Ethyl sought indemnification from Albemarle under the terms of their agreement. Albemarle indemnified Ethyl for its losses, which is the amount that Albemarle now seeks from MEMC in this lawsuit.

FN3. Larry Damewood, Gary Woodard, and Roy Moss v. Ethyl Corporation, Cause No. 96-38521, in the 189th District Court of Harris County, Texas.

MEMC filed for summary judgment, which was denied. Albemarle then filed a motion for partial summary judgment on the issue of whether MEMC was obligated to indemnify Albemarle, and MEMC re-urged its motion as a cross-motion for partial summary judgment. The trial court ruled in Albemarle’s favor. The trial court severed the summary judgment order and abated the question of damages so the parties could bring the present appeal.

Standard of Review

When reviewing cross-motions for summary judgment, we consider both motions and render the judgment that the trial court should have entered. Coastal Liquids Transp., L.P. v. Harris County Appraisal Dist., 46 S.W.3d 880, 884 (Tex.2001). Further, in a contract action where, as here, neither party contends that a contract is ambiguous, a court should construe the contract as a matter of law, and, on appeal, the court’s ruling is subject to de novo review. See J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex.2003) (citing Coker v. Coker, 650 S.W.2d 391, 394 (Tex.1983)) (applying rule to arbitration agreement); C.M. Asfahl Agency v. Tensor, Inc., 135 S.W.3d 768, 780 (Tex.App.-Houston [1st Dist.] 2004, no pet.) (interpreting asset purchase agreement); Tesoro Petroleum Corp. v. Nabors Drilling USA, Inc., 106 S.W.3d 118, 125 (Tex.App.-Houston [1st Dist.] 2002, pet. denied) (interpreting indemnity agreement); Webb v. Lawson-Avila Constr., Inc., 911 S.W.2d 457, 459-60 (Tex.App.-San Antonio 1995, writ dism’d w.o.j.).

“An indemnity agreement is a promise to safeguard or hold the indemnitee harmless against either existing and/or future loss liability.” Dresser Indus., Inc. v. Page Petroleum, Inc., 853 S.W.2d 505, 508 (Tex.1993). Indemnity provisions are to be strictly construed, pursuant to the usual principles of contract interpretation, in order to give effect to the parties’ intent as expressed in the agreement. See Ideal Lease Serv., Inc. v. Amoco Prod. Co., 662 S.W.2d 951, 953 (Tex.1984). In construing a written contract, the court’s primary concern is to ascertain the true intent of the parties as expressed in the instrument. J.M. Davidson, Inc., 128 S.W.3d at 229; see C.M. Asfahl Agency, 135 S.W.3d at 780. Accordingly, the court must examine and consider the entire writing in an effort to harmonize and give effect to all provisions so that none is rendered meaningless. J.M. Davidson, Inc., 128 S.W.3d at 229. The court may not consider any single provision, taken in isolation, as controlling, but must consider all provisions in the context of the entire instrument. Id.

Obligations Assumed by MEMC Under the Agreement

MEMC contends that, in its Asset Purchase Agreement with Albemarle, it did not assume an obligation for the indemnity agreement between Ethyl and Albermarle. MEMC contends that Sections 3.4, 4.16 and 3.3(b) exclude the agreement between Albemarle and Ethyl from the agreement between Albemarle and MEMC. Albemarle does not dispute that the agreement between Ethyl and Albemarle is never mentioned specifically in the agreement between Albemarle and MEMC. Albemarle, however, asserts that it is entitled to indemnification from MEMC under Section 7.4, the section of the agreement that pertains to indemnification.

1. MEMC Does Not Assume Obligation for Ethyl-Albemarle Agreement

MEMC points to Section 3.4 of the Asset Purchase Agreement to show that it did not assume any obligation for the indemnity agreement between Ethyl and Albermarle. As noted above, Albemarle does not dispute that Section 3.4 does not mention the agreement between Ethyl and Albemarle.

1. Section 3.4(a)

The Asset Purchase Agreement describes the transferred business and transferred assets. Section 3.4(a) specifically describes “Assumed Obligations.” These are obligations, assumed by MEMC, of liabilities that belong to Albemarle. The only obligations that are assumed by MEMC are those that are listed in Schedule 3.4(a)(i), the “Assumed Contracts[.]” FN4 The agreement between Ethyl and Albemarle was not listed in Schedule 3.4(a)(i) as a contract that was assumed by MEMC. Moreover, the agreement between Albemarle and MEMC specifically provided that MEMC would “assume no liabilities relating to the Assumed Contracts which result or arise from operation of the Transferred Business or the Transferred Assets prior to the Closing Date.” MEMC thus correctly points out that Section 3.4(a) provides that MEMC is assuming an obligation for only the liabilities of Albemarle that “are listed in Schedule 3.4(a)(i) [,]” and that the agreement between Ethyl and Albermarle is not listed in that Schedule. We agree with MEMC’s representation that under Section 3.4(a), it has not assumed liability for the agreement between Ethyl and Albemarle.

FN4. The Asset Purchase Agreement states,

Section 3.4 Assumptions by MEMC Pasadena

(a) Liabilities Being Assumed. Except as otherwise expressly provided herein and subject to the terms and conditions of the Agreement, simultaneously with the sale, transfer, conveyance and assignment to MEMC Pasadena of the Transferred Assets, MEMC Pasadena shall assume and agree and undertake in writing to pay, perform, and discharge as and when due … the following Liabilities of Seller (collectively, “Assumed Obligations” ):

(i) those Liabilities of Seller under all contracts, leases, subleases, commitments, supply contracts, agreements and orders relating primarily to the operation of the Transferred Business or the Transferred Assets, but in all such cases only to the extent the same are listed in Schedule 3.4(a)(i) attached hereto (the “Assumed Contracts” ) provided, however, that MEMC Pasadena shall assume no liabilities relating to the Assumed Contracts which result or arise from operation of the Transferred Business or the Transferred Assets prior to the Closing Date ….

2. Section 3.4(b)

The Asset Purchase Agreement specifies under Section 3.4(b) that liabilities of Albermarle are not being assumed by MEMC. The only exception is that MEMC is assuming liability for items listed in Schedule 3.4(a)(i), which is the schedule included within 3.4(a). Section 3.4(b) states that MEMC “shall not assume any other Liabilities” of Albemarle, unless the liability is “specifically assumed in writing” under Section 3.4(a). The agreement between Albemarle and Ethyl is not listed in Schedule 3.4(a)(i) and is therefore excluded from the obligations assumed by MEMC. MEMC thus accurately represents that under Section 3.4(b), it has not assumed liability for the agreement between Ethyl and Albemarle.FN5

FN5. Section 3.4(b) of the Asset Purchase Agreement states,

(b) Liabilities Not Being Assumed. Except for those Liabilities specifically assumed in writing by MEMC Pasadena pursuant to Section 3.4(a) hereof, MEMC Pasadena shall not assume any other Liabilities of Seller whatsoever such as (by way of example and without limitation of the scope of the preceding portion of this sentence), the following (collectively, “Excluded Obligations” ).

(i) any Liabilities of Seller (other than Assumed Obligations) of any nature whatsoever (regardless of whether the existence of such Liability (A) is or was at any time known or unknown to MEMC Pasadena, MEMC or Seller or (B) constitutes or does not constitute a breach of any representation or warranty of Seller to MEMC or MEMC Pasadena) to the extent arising or incurred or which arose or were incurred on or before the Closing, or which are based on (1) events occurring on or before the Closing, or (2) the operation of the Transferred Business on or before the Closing, notwithstanding that the date on which the claim, demand or Liability arose is after the Closing …

In summary, Sections 3.4(a) and (b) provide that MEMC is not assuming obligation for liabilities of Albemarle that are not specifically set forth in Schedule 3.4(a). The agreement between Ethyl and Albemarle is not mentioned in Schedule 3.4(a). We conclude that Section 3.4 of the agreement does not provide for MEMC to assume obligation for the indemnity agreement between Ethyl and Albermarle. Our task, however, is not merely to examine a single provision of the agreement, but to look at all the provisions in the context of the entire instrument in an effort to harmonize and give effect to all provisions so that none is rendered meaningless. See J.M. Davidson, Inc., 128 S.W.3d at 229.

1. Albemarle Did Not Disclose Ethyl-Albermarle Agreement

MEMC contends that the failure of Albemarle to disclose the existence of the indemnity agreement between Ethyl and Albemarle shows that there was never any obligation by MEMC for that agreement. Albemarle makes representations and warranties to MEMC in the Asset Purchase Agreement. Under Section 4.16(a)(x) of the Asset Purchase Agreement, Albemarle represents that it is not “a party to” and is “not bound by” any “agreements between or among” Albemarle and any “Affiliate.” The indemnification agreement between Ethyl and Albemarle showed that Albemarle was Ethyl’s “wholly-owned subsidiary[,]” which meets the definition of affiliate in the agreement between Albemarle and MEMC.FN6 Further, Section 4.16(xiii) includes Albemarle’s representation that it is not “a party to” and is “not bound by … any other agreement, contract, commitment, arrangement or instrument that relate[s] to or may affect the plant.” FN7 The only exception to these provisions concerns agreements listed in schedules accompanying the Asset Purchase Agreement. As noted above, the indemnity agreement between Ethyl and Albemarle was never disclosed in any schedule, nor was it ever mentioned in the Asset Purchase Agreement. We conclude that Section 4.16 called for Albemarle to disclose contract and commitments that “relate to or may affect” the plant, but Albemarle did not disclose its indemnity agreement with Ethyl. We also conclude that Albemarle failed to disclose in Section 4.16 the indemnity agreement it had with its affiliate, Ethyl. Albemarle’s failure to disclose its indemnity agreement with Ethyl suggests that MEMC was not aware of that agreement and did not obligate itself to cover any liability imposed under that agreement. We conclude that terms of Section 4.16 support MEMC’s position that it is not obligated for the indemnity agreement between Albemarle and Ethyl.

FN6. “Affiliate” is defined in the agreement as “in the case of an entity, any person who or which, directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, any specified Person (the term “control” for these purposes means the ability, whether by ownership of shares or other equity interest, by contract or otherwise, to elect a majority of the directors of a corporation … or have the power to remove and then select, a majority of those Persons exercising governing authority over an entity).”

FN7. The Asset Purchase Agreement states,

Section 4.16 Contracts and Commitments

(a) Except as set forth in Schedule 4.16 or in other Schedules to this Agreement hereof, to Seller’s knowledge, Seller is not, with respect to the Transferred Business or the Transferred Assets, a party to, and the Transferred Assets and the Transferred Business are not bound by, and the Assumed Obligations shall not include, any written or oral, formal or informal …

[the section lists a number of possible contractual obligations]

(x) agreements between or among Seller and any Affiliate of Seller;

…

(xiii)any other agreement, contract, commitment, arrangement or instrument that relate to or may affect the Transferred Business, except for the Assumed Contracts.

In view of Sections 3.4 and 4.16 of the Asset Purchase Agreement, we conclude that those sections suggest that MEMC was not obligated to indemnify Albemarle for the payment that it made to Ethyl.FN8

FN8. We disagree with MEMC that Section 3.3(b) supports its position that it is not obligated to Albemarle here, because we conclude that the section is inapplicable. Section 3.3(b) states that Albemarle continues to have responsibility for certain assets, including “(v) all indemnification rights against and indemnification agreements with other parties arising out of the Transferred Business or the Transferred Assets prior to the Closing Date.” The indemnity agreement between Ethyl and Albemarle is not an asset of Albemarle’s, but is rather a liability, and that Section, therefore, does not aid in our analysis of the issues here.

The Indemnification Portion of the Agreement

Albemarle contends that the indemnification terms specified by Section 7.4 of the agreement require MEMC to indemnify Albemarle, and that under the rules of contract construction, we must favor an interpretation that affords some consequence to each part of the instrument so that none of its provisions will be rendered meaningless. Albemarle contends Section 7.4(a) requires MEMC to indemnify it for its obligation to Ethyl so long as that obligation FN9 (1) is with respect to the transferred business,FN10 and (2) arose out of the operation of the transferred business, (3) on or after the closing date.

FN9. MEMC does not challenge Albemarle’s assertion that it met the term “Liabilities, Obligations or Claims” because the lawsuit arising out of the January 1996 fire would qualify as an obligation, claim, or liability. The Asset Purchase Agreement defines Liabilities as: “any and all debts, claims, liabilities and obligations of any kind, regardless of whether disclosure thereof would be required to be made in accordance with [Generally Accepted Accounting Principles], whether accrued or fixed, absolute or contingent or determined or determinable.”

FN10. Albemarle contends that it is undisputed that the Damewood plaintiffs were injured while performing polysilicon manufacturing operations for the Pasadena business, and thus the injuries were “with respect to the Transferred Business.” The agreement between Albemarle and MEMC defines “Transferred Business” as “all of the business of Seller related to the manufacture of granular polysilicon, silane, sodium aluminum fluoride, and sodium ethyl silicate at the manufacturing facilities of Seller located in Pasadena, Texas, but specifically excluding Seller’s sodium aluminum hydride business[.]”

MEMC’s challenge on appeal focuses on the term “arising out of the operations of the Transferred Business … on or after the Closing Date.” MEMC contends that the undisputed evidence shows that Albemarle’s payment to Ethyl was due to the agreement between them, which occurred prior to the Closing Date of the Asset Purchase Agreement between Albemarle and Ethyl, and that the payment did not arise out of the operations of the plant on or after the Closing Date. In short, the tort claims by the Damewood plaintiffs are not the legal basis for Albemarle’s indemnity claim here. MEMC also asserts that the undisputed summary judgment record indicates that every claim for which Ethyl was held liable arose out of Ethyl’s design and operation of the plant prior to the closing date of the Asset Purchase Agreement.

Albemarle responds that we should rely on the specific indemnity provision in Section 7.4(a) of the Asset Purchase Agreement, despite the fact that the Asset Purchase Agreement fails to mention the indemnity agreement between Ethyl and Albemarle. Albemarle contends that “Resolution of the meaning of the term ‘arising out of’ is, perhaps, the central and controlling issue presented to this Court.” Albemarle asserts that it is asking this Court to give “arising out of” the “normal inclusive” reading that “reasonable mutual indemnitors would have accorded the phrase.”

Under Section 7.4(a) of the Asset Purchase Agreement, MEMC must indemnify Albemarle for all damages asserted against, resulting to, imposed upon or incurred by Albemarle directly or indirectly by reason of or resulting from liabilities, obligations or claims with respect to the plant arising out of the operations of the plant on or after the Closing Date.FN11 The Damewood plaintiffs were injured after the Closing Date of the Asset Purchase Agreement and there is no dispute that those injuries arose out of the operations of the plant. The damages at issue here, however, consist of the payment made by Albemarle to Ethyl pursuant to their indemnity agreement, which was an agreement in existence before the Closing Date of the Asset Purchase Agreement. We conclude that the payment made to indemnify Ethyl was not a liability, obligation or claim arising out of the operations of the plant, but rather a payment that arose out of the prior contractual relationship between Albemarle and Ethyl.

FN11. Section 7.4 of the Asset Purchase Agreement provides that MEMC will indemnify Albemarle under certain circumstances. The agreement states,

Section 7.4 MEMC’s and MEMC Pasadena’s Agreement to Indemnify. Subject to the terms and conditions of this Article 7, MEMC and MEMC Pasadena jointly and severally agree to indemnify, defend and hold harmless Seller from and against all Damages asserted against, resulting to, imposed upon or incurred by Seller, directly or indirectly (collectively, “Seller Claims” ), by reason of or resulting from:

(a) without prejudice to any obligations of Seller under the Operating Agreement or the Utilities and Services Agreement, liabilities, obligations or claims with respect to the Transferred Business or the Transferred Assets (whether absolute, accrued, contingent or otherwise) arising out of the operations of the Transferred Business or the Transferred Assets (including the Facility and the Facility Site) on or after the Closing Date;

(b) liabilities with respect to the Assumed Obligations and the Assumed Contracts;

(c) a breach of any representation, warranty or agreement of MEMC or MEMC Pasadena contained in or made pursuant to this Agreement ….

We disagree with the assertion by Albemarle that we will render Section 7.4(a) meaningless if we interpret the Asset Purchase Agreement to deny recovery here. The Asset Purchase Agreement plainly provides for MEMC to indemnify for damages arising out of the operations of the plant on or after the Closing Date. That indemnity agreement remains in place for any liabilities, obligations or claims that arise out of the operations of the plant on or after the closing date. Our holding merely denies recovery for any Albemarle liabilities, obligations or claims that arise out of unidentified, contractual obligations in existence prior to the Closing Date that were not specifically mentioned by the Asset Purchase Agreement with MEMC.FN12

FN12. In its most recent supplemental brief, Albemarle contends that the language in Section 7.4. which states that the section is “[s]ubject to the terms and conditions of this Article 7 ” requires us to read Section 7.4 independently of Articles 3 and 4. To the contrary, we note that the term “subject to the terms and conditions” appears throughout the agreement, and nowhere requires any section to be read in isolation. We also note that Section 7.1 expressly incorporates all other agreements between the parties into Article 7:

All representations, warranties and agreements made by any party to this Agreement or pursuant hereto shall be true, complete, and correct as of the date hereof and at and as of the Closing Date as though such representations, warranties, covenants and agreements were made at and as of the closing date.

Viewing the indemnity provision in context with the agreement as a whole, our conclusion is consistent with the other sections of the agreement. As we noted above, Section 3.4 of the agreement does not provide for MEMC to assume an obligation for the indemnity agreement between Albemarle and Ethyl. Additionally, Albemarle’s failure to disclose the agreement under Section 4.16, suggests that MEMC was not aware of the agreement. We further noted that Section 4.16(a)(x) suggests that MEMC is not obligated to Albemarle for its payment to Ethyl because it is a “wholly-owned subsidiary” of Ethyl, which would qualify as an “Affiliate of Seller” under the Asset Purchase Agreement.

Albemarle refers us to decisions that interpret “arising out of” language to require only a causal nexus between the action and the result. For its broad interpretation, Albemarle calls this court’s attention to a number of cases construing insurance contracts. See Mid-Century Ins. Co. of Tex. v. Lindsey, 997 S.W .2d 153, 156 (Tex.1999); Utica Nat’l Ins. Co. v. Am. Indem. Co., 141 S.W.3d 198, 203 (Tex.2004); McCarthy Bros. Co. v. Cont’l Lloyds Ins. Co., 7 S.W.3d 725, 730 (Tex.App.-Austin 1999, no pet.); Gen. Agents Ins. Co. v. Arredondo, 52. S.W.3d 762, 767 (Tex.App.-San Antonio 2001, pet. denied); Sport Supply Group, Inc. v. Columbia Cas. Co., 335 F.3d 453, 458 (5th Cir.2003). In interpreting an insurance policy, when that policy “is subject to more than one reasonable interpretation, we must adopt the construction most favorable to the insured when we resolve the uncertainty.” State Farm Fire & Cas. Co. v. Vaughan, 968 S.W.2d 931, 933 (Tex.1998). Albemarle presents no authority that requires us to interpret the terms of contractual indemnity in a commercial setting-terms which neither party contends are subject to multiple reasonable interpretations-to favor the indemnitee.

MEMC relies on an unpublished decision from this Court in Union Tex. Petroleum Energy Corp. v. Kelly Operating Co., No. 01-96-00346-CV, 1997 WL 476322 (Tex.App.-Houston [1st Dist.] Aug. 21, 1997, no pet.) (not designated for publication). In August 1990, four men were injured by a well and sued Union Texas for negligent dredging of an oil well extension canal that occurred in 1975. Id. at *1. Kelly refused to indemnify Union Texas under their May 1990 agreement that provided that Kelly would discharge all obligations arising out of the purchased property with respect to all occurrences on or after the Effective Date of the agreement. Id. This Court held that the agreement that provided for indemnity after May 1990 did not apply because the negligent conduct-the 1975 dredging of the oil well-occurred prior to the effective date of the agreement. Id. at *3. Here, similarly, the liability, obligation or claim arises from the contractual relationship between Albemarle and Ethyl, which occurred before the Closing Date of the Asset Purchase Agreement. See id.

Examining the entire writing in order to give effect to the intent of the parties as expressed in the agreement, and in order to render no clause meaningless, we conclude that the Asset Purchase Agreement does not obligate MEMC to indemnify Albemarle for the payment to Ethyl under the agreement between Albemarle and Ethyl. The trial court therefore erred by granting partial summary judgment for Albmarle, and also erred by failing to grant partial summary judgment in favor of MEMC.

Conclusion

We reverse and render judgment for MEMC.

Williams, McClure & Parmelee is dedicated to high quality legal representation of businesses and insurance companies in a variety of matters. We are experienced Texas civil litigation attorneys based in Fort Worth who know Texas courts and Texas law. For more information, please contact the law firm at 817-335-8800. The firm’s new office location is 5601 Bridge Street, Suite 300, Fort Worth, Texas 76112.

United States District Court,
N.D. Texas,
Dallas Division.
CENTEX HOMES, a Nevada
General Partnership, Plaintiff,
v.
LEXINGTON INSURANCE COMPANY, Defendant.
No. 3:13–cv–719–BN. | Signed
March 24, 2014. | Filed March 25, 2014.

Opinion
MEMORANDUM OPINION & ORDER ON
DEFENDANT’S MOTION FOR PARTIAL
SUMMARY JUDGMENT REGARDING
RIGHT TO CONTROL DEFENSE
DAVID L. HORAN, United States Magistrate Judge.
*1 Defendant Lexington Insurance Company (“Defendant”
or “Lexington”) has filed a motion for partial summary
judgment. See Motion for Partial Summary Judgment
regarding Right to Control Defense [Dkt. No. 43]. Plaintiff
Centex Homes (“Plaintiff” or “Centex”) filed a Response
[Dkt. Nos. 60 & 61], and Defendant filed a Reply [Dkt. No.
67].
Plaintiff also filed a motion to strike evidence submitted by
Defendant with its reply, see Dkt. No. 68, to which Defendant
filed no response. No response having been filed, and the
Court having not considered any of the evidence in reaching
its decision, Plaintiff’s motion to strike [Dkt. No. 68] is
DENIED as moot.
The Court makes the following rulings with respect to
Defendant’s Motion for Partial Summary Judgment.
Background
This case involves a coverage dispute between an insured and
insurer. Plaintiff is primarily in the business of designing,
developing, and constructing condominiums and other
housing complexes throughout the country. See Dkt. No. 66
at 2. In constructing these condominium projects, Plaintiff
purchases “wrap” insurance policies that cover Plaintiff as
a general contractor and all subcontractors performing work
in connection with the insured project. See id. at 3. Plaintiff
purchased five such wrap policies from Defendant, but only
two of these policies are at issue in Defendant’s Motion for
Partial Summary Judgment, so the Court will only summarize
the facts related to the two relevant policies.
The following facts are undisputed. The Element
Development Project (“Element”) involves an eight-story
condominium built by Plaintiff in San Diego, California. See
Dkt. No. 66 at 3. Plaintiff purchased a “wrap” policy on
the Element Project (the “Element Policy”). See id. Under
the Element Policy, there is an “each occurrence” limit
of $5,000,000 and a “Retained Amount” of $500,000 for
“each occurrence.” See Dkt. No. 63–2 at 1. In other words,
Defendant is not obligated to make any payments under
the Element Policy until Plaintiff has reached its Retained
Amount of $500,000. The Element Policy mandated a “Joint
Defense Approach,” which reflects that the named insured
would cooperate with Defendant in connection with the
investigation, defense, and resolution of any occurrence,
offense, claim, or suit under the Policy. See Dkt. No. 43–1
at 65. In April 2009, members of the Element Homeowners’
Association filed suit in California against Plaintiff (the
“Element Litigation”) for several causes of action, including
construction defects. See id. at 4; Dkt. No. 63–5 at 1 (Second
Amended Complaint in Element Litigation). Plaintiff and
Defendant offer different accounts as to what transpired after
the Element Litigation was filed, as detailed below.
The Astoria Development Project (“Astoria”) involves a
15–building condominium project located in Sacramento,
California. See Dkt. No. 66 at 5. Plaintiff purchased a
“wrap” policy on the Astoria Project (the “Astoria Policy”).
See Dkt. No. 66 at 3. Under the Astoria Policy, there is
an “each occurrence” limit of $5,000,000 and a “Retained
Amount” of $150,000 for “each occurrence.” See Dkt. No.
Centex Homes v. Lexington Ins. Co., Slip Copy (2014)
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63–2 at 1. In other words, Defendant is not obligated to make
any payments under the Astoria Policy until Plaintiff has
reached its Retained Amount of $150,000. The Astoria Policy
also mandated a “Joint Defense Approach,” which reflects
that the named insured would cooperate with Defendant in
connection with the investigation, defense, and resolution
of any occurrence, offense, claim, or suit under the Policy.
See Dkt. No. 43–1 at 22. In February 2011, members of the
Astoria Owners’ Association filed suit in California against
Plaintiff (“Astoria Litigation”) for several causes of action,
including construction defects. See Dkt. No. 43–1 at 85.
Plaintiff and Defendant offer different accounts as to what
transpired after the Astoria Litigation was filed, as detailed
below.
*2 Plaintiff and Defendant disagree with respect to the
following: Plaintiff’s exhaustion of the retention amounts
under the Policies; the timing of Defendant’s agreement
to provide a defense; Defendant’s reservation of rights
explanation; Defendant’s payment of defense costs; and
when Defendant provided notification that Plaintiff’s selected
counsel—Newmeyer & Dillion—was not acceptable.
Defendant claims that Plaintiff did not provide the proof
of its payment and satisfaction of the applicable Retained
Amounts for both the Astoria Litigation and Element
Litigation (collectively, the “Underlying Litigation”), as
required under the Policies, until much later than Plaintiff
claims that it did. See Dkt. No. 43 at 5. Defendant further
contends that it immediately told Plaintiff that it would not
agree to Newmeyer & Dillion’s continuing its representation
of Plaintiff in the Underlying Litigation and that this
information is covered in its Claim Account Instructions,
which Defendant provided to its insureds. See Dkt. No. 43–
1 at 119–136. Defendant takes the position that, in the face
of Defendant’s stance on legal counsel, Plaintiff refused to
switch counsel in violation of Plaintiff’s obligations under the
Element and Astoria Policies. See Dkt. No. 43–1 at 140–142.
Plaintiff counters that it properly provided Defendant with
notice of the Underlying Litigation and that, in that timely
notice, Plaintiff informed Defendant that Newmeyer &
Dillion was acting as counsel. See Dkt. No. 63–4 at 75 (¶¶ 9–
11) (Element); Dkt. No. 63–6 at 23 (Astoria). Plaintiff claims
that it provided the proof of its payment and satisfaction
of the applicable Retained Amounts sooner than Defendant
alleges: April 2012 for Astoria, see Dkt. No. 63–6 at 35, and
November 15, 2011 for Element, see Dkt. No. 63–3 at 90.
Plaintiff contends that Defendant did not agree to defend the
Astoria Litigation until November 2012, see Dkt. No 63–1 at
4 (¶ 20), and did not agree to defend the Element Litigation
until April 2012, see id. at 5 (¶ 31). Plaintiff reports that
Defendant made no payments on the Astoria Litigation until
April 2013 and did not provide a reservation of rights until
October 2013. See Dkt. No. 63–1 at 3 (¶ 18). As for the
Element Litigation, Plaintiff states that Defendant made no
payments until April 2013 and did not provide a reservation of
rights until April 2012. See Dkt. No. 63–1 at 6 (¶ 33); Dkt. No.
63–3 at 52–89. Plaintiff contends that Defendant has not made
all payments required under the Policies and has improperly
refused to let Plaintiff select its defense counsel.
Plaintiff brought this lawsuit against Defendant on January
10, 2013 in Texas state court. See Dkt. No. 1. The case
was removed to this Court. Plaintiff asserts several causes
of action, which Defendant denies. Defendant also brings
counterclaims, including the declaratory judgment action on
which it now seeks summary judgment.
Legal Standards
*3 Under Fed.R.Civ.P. 56, summary judgment is proper
“if the movant shows that there is no genuine dispute as to
any material fact and the movant is entitled to judgment as
a matter of law.” FED. R. CIV. P. 56(a). A factual “issue
is material if its resolution could affect the outcome of the
action.” Weeks Marine, Inc. v. Fireman’s Fund Ins. Co., 340
F.3d 233, 235 (5th Cir.2003). “A factual dispute is ‘genuine,’
if the evidence is such that a reasonable [trier of fact] could
return a verdict for the nonmoving party.” Crowe v. Henry,
115 F.3d 294, 296 (5th Cir.1997).
If the moving party seeks summary judgment as to his
opponent’s claims or defenses, “[t]he moving party bears the
initial burden of identifying those portions of the pleadings
and discovery in the record that it believes demonstrate the
absence of a genuine issue of material fact, but is not required
to negate elements of the nonmoving party’s case.” Lynch
Props., Inc. v. Potomac Ins. Co., 140 F.3d 622, 625 (5th
Cir.1998). “Once the moving party meets this burden, the
nonmoving party must set forth”—and submit evidence of
—“specific facts showing a genuine issue for trial and not rest
upon the allegations or denials contained in its pleadings.” Id.;
Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir.1994)
(en banc).
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The Court is required to view all facts and draw all reasonable
inferences in the light most favorable to the nonmoving party
and resolve all disputed factual controversies in favor of the
nonmoving party—but only if both parties have introduced
evidence showing that an actual controversy exists. See
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct.
2505, 91 L.Ed.2d 202 (1986); Boudreaux v. Swift Transp.
Co., Inc., 402 F.3d 536, 540 (5th Cir.2005); Lynch Props.,
140 F.3d at 625. “Unsubstantiated assertions, improbable
inferences, and unsupported speculation are not sufficient
to defeat a motion for summary judgment,” Brown v. City
of Houston, 337 F.3d 539, 541 (5th Cir.2003), and neither
will “only a scintilla of evidence” meet the nonmovant’s
burden, Little, 37 F.3d at 1075. Rather, the non-moving party
must “set forth specific facts showing the existence of a
‘genuine’ issue concerning every essential component of its
case.” Morris v. Covan World Wide Moving, Inc., 144 F.3d
377, 380 (5th Cir.1998). If, “after the nonmovant has been
given an opportunity to raise a genuine factual issue,” “the
record, taken as a whole, could not lead a rational trier of fact
to find for the non-moving party, then there is no genuine
issue for trial.” DIRECTV, Inc. v. Minor, 420 F.3d 546,
549 (5th Cir.2005); Steadman v. Texas Rangers, 179 F.3d
360, 366 (5th Cir.1999). The Court will not assume “in the
absence of any proof … that the nonmoving party could or
would prove the necessary facts” and will grant summary
judgment “in any case where critical evidence is so weak
or tenuous on an essential fact that it could not support a
judgment in favor of the nonmovant.” Little, 37 F.3d at 1075.
“Rule 56 does not impose upon the district court a duty to
sift through the record in search of evidence to support a
party’s opposition to summary judgment,” and “[a] failure on
the part of the nonmoving party to offer proof concerning
an essential element of its case necessarily renders all other
facts immaterial and mandates a finding that no genuine issue
of fact exists.” Adams v. Travelers Indem. Co. of Conn.,
465 F.3d 156, 164 (5th Cir.2006) (internal quotation marks
omitted).
*4 If, on the other hand, “the movant bears the burden of
proof on an issue, either because he is the plaintiff or as
a defendant he is asserting an affirmative defense, he must
establish beyond peradventure all of the essential elements
of the claim or defense to warrant judgment in his favor.”
Fontenot v. Upjohn Co. ., 780 F.2d 1190, 1194 (5th Cir.1986).
The “beyond peradventure” standard imposes a “heavy”
burden. Cont’l Cas. Co. v. St. Paul Fire & Marine Ins. Co.,
No. 3:04–cv–1866–D, 2007 WL 2403656, at *10 (N.D.Tex.
Aug.23, 2007). The moving party must demonstrate that there
are no genuine and material fact disputes and that the party
is entitled to summary judgment as a matter of law. See,
e.g., Martin v. Alamo Cmty. Coll. Dist., 353 F.3d 409, 412
(5th Cir.2003). On such a motion, the Court will, again,
“draw all reasonable inferences in favor of the non-moving
party.” Chaplin v. NationsCredit Corp., 307 F.3d 368, 372
(5th Cir.2002).
Analysis
Lexington moves for summary judgment on Count One of
its counterclaims, which seeks declaratory judgment on the
following three issues: (a) Defendant has the right to control
the defense of Centex in the Astoria and Element Litigation;
(b) Plaintiff is not entitled to the appointment of independent
counsel under California Civil Code § 2860; and (c) Plaintiff
breached its duty to cooperate under the Astoria Policy and
Element Policy by refusing to acknowledge that Defendant
had a right to control the defense and select counsel and
by insisting that Defendant continue to pay Newmeyer &
Dillion’s fees and costs.
As an initial matter, the parties disagree as to whether
California or Texas law applies to Defendant’s declaratory
judgment claims. Defendant argues that California law
applies and that, under California Civil Code section 2860,
Plaintiff was not entitled to independent counsel. See Dkt. No.
43; Dkt No. 67. Plaintiff contends that Texas law applies and
that, under Texas law, Plaintiff was entitled to independent
counsel. See Dkt. No. 61. Both parties argue that, even if the
other jurisdiction’s law applies, its position is correct.
Because the parties disagree on which law applies, and on
whether the outcome under each law differs, the Court must
first undertake a choice-of-law analysis. Once the choiceof-
law analysis is complete, the Court will turn to whether
summary judgment is appropriate on any of Defendant’s
declaratory judgment causes of action.
1. Texas Law Applies to Defendant’s Declaratory
Judgment Claims Regarding Right to Control and
Selection of Independent Counsel.
Before deciding which state’s substantive law should control
the issues raised by the parties here, “the Court must first
determine which choice-of-law rules should be applied.” In
re Soporex, Inc. ., 446 B.R. 750, 761 (Bankr.N.D.Tex.2011).
Here, both parties assert that Texas choice-of-law rules should
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determine the applicable laws in this case. See Dkt. No. 43 at
8–9; Dkt. No. 61 at 20–21.
*5 Texas courts utilize the “most significant relationship”
test to determine which state’s law applies to a particular
substantive issue. See Coghlan v. Wellcraft Marine Corp.,
240 F.3d 449, 452 n. 2 (5th Cir.2001) (citing Duncan v.
Cessna Aircraft Co., 665 S.W.2d 414, 421 (Tex.1984)). This
test is based on the Restatement (Second) of Conflict of
Laws and utilizes a multi-factor methodology to determine
which state has the most significant relationship to the
substantive issues involved in a dispute. See Duncan, 665
S.W.2d at 421. Deciding which state’s laws should govern
an issue “is a question of law for the court to decide.”
Hughes Wood Products, Inc. v. Wagner, 18 S.W.3d 202,
204 (Tex.2000) (citing Duncan, 665 S.W.2d at 421); see
also McKinney BB v. U.S. Realty Advisors, LLC, No. 01–
11483, 2003 U.S.App. LEXIS 28011, at *18 (5th Cir. Jan.
24, 2003) (“[T]he question of which state’s law to apply
is a question of law.”); Janvey v. Suarez, No. 3:10–cv–
2581–N, 2013 WL 5663107, at *3 (N.D.Tex. Oct.17, 2013).
But this legal determination involves a factual inquiry. See
Hughes Wood Products, 18 S.W.3d at 204; Janvey, 2013
WL 5663107, at *3. That is, “the party urging application of
another state’s substantive law [must] furnish the Court with
‘sufficient information’ to establish that the law of another
state applies.” Janvey v. Alguire, 846 F.Supp.2d 662, 671
(N.D.Tex.2011) (quoting Holden v. Capri Lighting, Inc., 960
S.W.2d 831, 833 (Tex.App.-Amarillo 1997, no pet.)) (internal
quotations omitted). Absent such sufficient information, “
‘the failure to provide adequate proof of choice of law …
results in a presumption that the law of the foreign jurisdiction
is identical to the law of Texas.’ ” Id. (quoting Pittsburgh
Corning Corp. v. Walters, 1 S.W.3d 759, 769 (Tex.App.-
Corpus Christi 1999, pet. denied)) (internal brackets omitted).
When two states’ laws are substantially the same, this
precludes the need to undertake a choice-of-law analysis. See
Lexxus Int’l, Inc. v. Loghry, 512 F.Supp.2d 647, 668 n. 17
(N.D.Tex.2007); cf. Fraud–Tech, Inc. v. Choicepoint, Inc.,
102 S.W.3d 366, 377–78 (Tex.App.-Fort Worth 2003, pet.
denied) (“Before undertaking a choice of law analysis, we
look to whether a conflict of law exists. If no conflict exists on
the issues, we need not decide which state’s laws govern.”).
Because no choice-of-law analysis would be required if
California and Texas law were consistent on the issues, the
Court must first determine if the laws of each jurisdiction
differ with respect to (1) duty to defend, and by extension
duty to control the defense, and (2) the independent counsel
analysis.
a. Duty to Control the Defense.
Neither party appears to dispute the allegation that Defendant
had a duty to defend the lawsuit, subject to Defendant’s
reservation of rights. See Dkt. No. 117 at 2–3. Under Texas
law, once the insured has a duty to defend, included in
that duty right is the right to control the defense and to
select counsel. See N. County Mut. Ins. Co. v. Davalos, 140
S.W.3d 685, 688 (Tex.2004) (finding that an insurer’s “right
to defend” a lawsuit encompasses “the authority to select
the attorney who will defend the claim and to make other
decisions that would normally be vested in the insured as the
named party in the case.”). Similarly, under California law,
if an insurer has a duty to defend, it may control the defense,
including the selection of counsel. See Safeco Ins. Co. of Am.
v. Sup.Ct., 71 Cal.App.4th 782, 787, 789–90, 84 Cal.Rptr.2d
43 (Cal.Ct.App.1999).
*6 But Plaintiff contends that summary judgment is
not warranted on Defendant’s declaratory judgment count
regarding duty to control because, at the least, there is a
fact issue regarding whether Defendant breached its duty
to defend by its unreasonable delay in accepting its duty
to defend, paying Plaintiff’s defense costs, and/or providing
Defendant’s coverage position with respect to the Underlying
Litigation, see Dkt. No. 66 at 11–12, in which case Defendant
had no right to control the defense or select counsel. The
choice-of-law issue with respect to duty to defend, then, is
whether Texas and California law are consistent with respect
to what constitutes a breach of a duty to defend and whether a
breach of a duty to defend forfeits the insured’s right to control
the defense.
Under California law, when the insured breaches its duty to
defend, it forfeits its right to control the defense of the action
or settlement. See Intergulf Dev. v. Sup.Ct., 183 Cal.App.4th
16, 20–21, 107 Cal.Rptr.3d 162 (Cal.Ct.App.2010). An
insurer will breach its duty to defend where it unreasonably
fails to provide benefits due under the policy, such as
providing counsel. See id.; Dynamic Concepts v. Truck
Ins. Exch., 61 Cal.App.4th 999, 1010, 71 Cal.Rptr.2d 882
(Cal.Ct.App.1998). Similarly, under Texas law, where a
breach of the duty to defend is caused by an unreasonable
delay, the insurer forfeits its right to defend and, by extension,
its right to select the counsel of its choosing. See Kirby Co.
v. Hartford Casualty Ins. Co., No. 3:02–cv–1616, 2004 WL
2165367, at *4 (N.D.Tex. Sept.23, 2004) (citing Rhodes v.
Centex Homes v. Lexington Ins. Co., Slip Copy (2014)
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 5
Chicago Ins. Co., 719 F.2d 116, 120 (5th Cir.1983)). Thus,
the laws of each jurisdiction are consistent on this issue, and
Texas law will apply.
The next issue is whether each jurisdiction’s law is the same
with respect to when an exception to the insurer’s right to
select counsel exists.
b. Selection of Independent Counsel.
Under Texas law, the insurer with a duty to defend has a
right to select the insured’s counsel unless a conflict of interest
exists. See State Farm Mut. Auto. Ins. Co. v. Traver, 980
S.W.2d 625, 627–28 (Tex.1998); Rx.com Inc. v. Hartford
Fire Ins. Co., 426 F.Supp.2d 546, 559 (S.D.Tex.2006). A
reservation of rights letter may create a potential conflict,
but the fact that an insurer issues a reservation of rights
letter or provides a defense subject to a reservation of rights
does not, standing alone, create a conflict that permits the
insured to select its own counsel. See Partain v. Mid–
Continent Specialty Ins. Servs., Inc., 838 F.Supp.2d 547,
567 (S.D.Tex.2012) ( “[R]eservation of rights letters do not
‘necessarily create a conflict between the insured and the
insurer.’ Rather, a reservation of rights letter ‘only recognizes
the possibility that such a conflict may arise in the future.’
” (internal citations omitted)); Davalos, 140 S.W.3d at 689.
To determine whether a conflict of interest exists, the Court
must determine whether “the facts to be adjudicated in the
liability lawsuit are the same facts upon which coverage
depends,” and, if so, the conflict of interest will prevent the
insurer from conducting the defense. Davalos, 140 S.W.3d
at 689. Thus, for a real conflict of interest to exist, it must
be apparent that the facts on which coverage depends will be
ruled on judicially in the underlying lawsuit. See Partain, 838
F.Supp.2d at 567.
*7 Under California law, an insurer may also select the
insured’s counsel unless a conflict of interest exists. See
CAL. CIV.CODE § 2860(a) (“If the provisions of a policy
of insurance impose a duty to defend upon an insurer and
a conflict of interest arises which creates a duty on the part
of the insurer to provide independent counsel to the insured,
the insurer shall provide independent counsel to represent the
insured unless … the insured expressly waives, in writing, the
right to independent counsel.”).
Thus, under both Texas and California law, an insurer having
the right to control the defense has the right to select the
insured’s defense counsel unless a conflict of interest exists.
The only remaining issue is whether the conflict of interest
standard is the same under California and Texas law.
According to California Civil Code § 2860(b), a conflict of
interest may exist where an insurer has reserved its rights
on an issue and the outcome of the coverage issue can be
controlled by the counsel retained by the insurer. See CAL.
CIV.CODE § 2860(b). In California, as in Texas, merely
tendering a reservation of rights does not create a conflict of
interest warranting independent counsel. See Park Townsend,
LLC v. Clarendon Am. Ins. Co., No. 12–CV–04412, 2013
WL 3475176, at *8 (N.D.Cal. July 10, 2013). Likewise, the
conflict of interest must be actual, not merely potential. See
Dynamic Concepts, 61 Cal.App.4th at 1007, 71 Cal.Rptr.2d
882.
California courts, and the legislature, have provided several
scenarios in which an actual conflict of interest may exist. See
CAL. CIV.CODE § 2860; Gafcon, Inc. v. Ponsor & Assocs.,
Inc., 98 Cal.App.4th 1388, 1421–22, 120 Cal.Rptr.2d 392
(Cal.Ct.App.2002); Park Townsend, 2013 WL 3475176, at
*8. Included in those scenarios are two situations that might
apply in the instant case: (1) the insurer reserves its rights
on a given issue and the outcome of that coverage issue can
be controlled by the insurer’s retained counsel, or (2) any
other situation where an attorney who represents the interests
of both the insurer and the insured finds that his or her
representation of the one is rendered less effective by reasons
of his or her representation of the other. See Park Townsend,
2013 WL 3475176, at *8.
While the language in Texas decisions describing an actual
conflict of interest may be different from that found in Texas
cases, the analysis is not. Accord Rx.com Inc., 426 F.Supp.2d
at 559 (“A conflict of interest does not arise unless the
outcome of the coverage issue can be controlled by counsel
retained by the insurer for the defense of the underlying
claim.”). At bottom, California cases hold that, if the issues in
the underlying lawsuit would also resolve the coverage issues,
the counsel selected by the insurer might have reason to take
a position that would undermine the insured’s best position
in the underlying lawsuit. One way to reach that conclusion
is for a court to analyze whether the issue or issues related
to the coverage dispute would be those that the court in the
underlying litigation would adjudicate. See Park Townsend,
2013 WL 3475176, at *10 (analyzing whether the results of
underlying lawsuit will disadvantage insured’s position in the
coverage dispute).
Centex Homes v. Lexington Ins. Co., Slip Copy (2014)
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 6
*8 As such, the conflict of interest standard is essentially the
same under both Texas and California law. Having found that
there is no difference in the two states’ laws as it relates to this
conflict of interest standard, Texas law will apply.
2. Summary Judgment is Not Warranted on Defendant’s
Declaratory Judgment Causes of Action.
Defendant seeks summary judgment on three counts for both
the Astoria and Element causes of action. First, Defendant
seeks a declaration that it has the right to control the
defense of Centex in the Astoria and Element causes of
action. Defendant also seeks a declaration that Plaintiff is
not entitled to the appointment of independent counsel under
California Civil Code § 2860. Finally, encompassing both of
the first two declaratory judgment requests, Defendant seeks
a declaration that Plaintiff breached its duty to cooperate
under the Astoria Policy and Element Policy by refusing to
acknowledge Defendant had a right to control the defense
and select counsel and by insisting Defendant continue to pay
Newmeyer & Dillion’s fees and costs.
a. Defendant’s claim that it has the right to control the
defense of Centex in the Astoria and Element causes of
action.
Because the parties do not dispute the duty to defend,
and by extension the right to control the defense, the only
issue is whether there was a breach by Defendant that
precluded it from exercising its right to control. If so, then
no declaratory judgment claim is warranted. Plaintiff argues
against summary judgment on the grounds that Defendant
unjustifiably and unreasonably delayed in acknowledging its
duty to defend, issuing its reservation of rights, and paying the
applicable defense costs, thereby forfeiting its right to control
the defense of the Underlying Litigation. See Dkt. No. 61 at
27–29.
Plaintiff relies primarily on the holding in Kirby Co.
v. Hartford Cas. Ins. Co., No. 3:02–cv–1616, 2004 WL
4528937 (N.D.Tex. Sept. 23, 2004), but the Court finds that
the circumstances in the instant case are not as clear cut.
The court in Kirby found that the evidence conclusively
established that the insurer’s delay was not warranted and was
unreasonable. See id. at *3. Here, the parties have presented
conflicting evidence regarding the extent of Defendant’s delay
in responding to Plaintiff’s request for coverage; the reasons
for any alleged delay, which bears on whether it was justified
or excusable; and generally whether the length of any alleged
delay was such that it constituted a breach. For instance,
Defendant presents evidence that, pursuant to the terms of
the Astoria and Element Policies, once it received evidence
that Plaintiff had actually exhausted the Retained Amounts
on the Astoria and Element Policies—meaning it received
the invoices and evidence of payments made—it accepted
defense of the actions, subject to a general reservation of
rights. See Dkt. No. 67 at 17; Dkt. No. 43–1 at 141 & 194.
But Plaintiff contends and presents evidence that it exhausted
the Retained Amounts earlier than Defendant states and that
Defendant delayed by an allegedly unreasonable amount of
time in responding to Plaintiff’s request for defense and
payment of its defense costs. See Dkt. No. 61 at 27–29; Dkt.
No. 63–6 at 35; 63–3 at 12, 83, & 90. Defendant claims
that any alleged delay on its party was justified by Plaintiff’s
failure to provide the appropriate documents, see Dkt. No. 67
at 17–18.
*9 Having a established a conflict of evidence exists, the
Court must view all evidence of record in the light most
favorable to Plaintiff. In doing so, the Court concludes that
Defendant has failed to show that there is no genuine dispute
as to any material fact and that summary judgment is not
warranted on Defendant’s first declaratory judgment claim at
this time.
The Court also notes that Plaintiff argues that, because
Defendant stated in a deposition that, if Texas law applied,
Plaintiff would have the right to control the defense,
including its selection of counsel, summary judgment is
inappropriate. See Dkt. No. 61 at 23. The Court is not denying
summary judgment on the basis of this testimony alone. First,
Defendant did not make such an explicit statement but rather
said “it would likely be allowed.” Dkt. No. 61 at 23. Second,
Defendant clearly is not arguing as much and says so in
its briefing. See Dkt. Nos. 43 & 67. This testimony does,
however, lend support to a finding that a fact issue exists as
to what Defendant believes and what the facts support.
Having reviewed the evidence of record, the Court finds
nothing to support a finding that summary judgment is proper
as a matter of law, and therefore Defendant’s motion for
summary judgment is DENIED as to this claim.
b. Defendant’s claim that Plaintiff is not entitled to the
appointment of independent counsel under California
Civil Code § 2860.
As explained above, under Texas law, an insured is entitled
to independently select his counsel in certain circumstances.
But a reservation of rights letter alone does not necessarily
Centex Homes v. Lexington Ins. Co., Slip Copy (2014)
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create such circumstances. See Partain, 838 F.Supp.2d at
567; Davalos, 140 S.W.3d at 689. Rather, it is only when
“the facts to be adjudicated in the liability lawsuit are the
same facts upon which coverage depends” that a conflict of
interest exists that prevents the insurer from conducting the
defense. Davalos, 140 S.W.3d at 689. In other words, it must
be apparent that the facts on which coverage depends will also
be adjudicated in the underlying litigation. See Partain, 838
F.Supp.2d at 567.
In the Astoria Litigation, the plaintiffs alleged four causes
of action. See Dkt. No. 43–1 at 95–104. The plaintiffs
first alleged that the construction violated several sections
of California Civil Code § 896, a de facto building code
defining the standards a structure must meet. See CAL.
CIV.CODE § 896. The plaintiffs’ allegations include the
following violations: structural and other defects permitting
unintended water to enter the structure; construction
that does not meet government codes; electrical and
mechanical systems defects causing unreasonable risk of fire;
cracks that display significant vertical displacement or are
excessive in the exterior of the building; roofing materials
improperly installed; air conditioning not meeting California
Code Regulations; dryer ducts improperly installed; and
construction of structures in a manner so as to impair
the occupants safety. See Dkt. No. 43–1 at 96–97. The
plaintiffs further allege the defendants, including Plaintiff,
made negligent misrepresentations regarding the building’s
components; regarding whether the structures had been
properly inspected and met all applicable building codes;
regarding whether all known defects had been disclosed and
reserve budgets met certain standards; regarding whether
the defendants anticipated a need for special assessments
related to major components; and regarding whether
any obligations could be properly discharged under the
appropriate documents. See id. at 98. The plaintiffs also
brought causes of action for breach of fiduciary duty for many
of the same reasons on which their other causes of action were
based and for violating the Governing Documents of the sale.
See id. at 100–103.
*10 Defendant agreed to defend Plaintiff, subject to a
reservation of rights. Defendant offered both a general and
a specific reservation of rights. See Dkt. No. 63–3 at 13–16.
The reservation of rights stated that “Lexington reserves the
right to decline coverage for the claim to the extent that it
does not constitute property damage as defined in the policy.”
Dkt. No. 63–3 at 14. While there are several more specific
reservations of rights, the only one that Plaintiff indicates
might conflict with the causes of action to be litigated in the
Astoria Litigation is the reservation of rights for any coverage
for certain “business risks.” See Dkt. No. 61 at 25; Dkt. No.
63–3 at 15.
In the underlying Element Litigation, the plaintiffs asserted
two causes of action in the second amended complaint. See
Dkt. No. 63–5 at 1. The first cause of action again relates
to violations of the California Civil Code building standards,
including structural violations resulting in ongoing significant
cracks in concrete foundations and exterior walls; unintended
water and/or leaks and intrusion; violations in fire safety
systems; and defects in the windows, doors, and component
systems. See Dkt. No. 63–5 at 13–17. The plaintiffs also
allege the defendants breached the fiduciary duty owed to the
plaintiffs as a result of the alleged deficiencies and violations.
See id. at 17–18.
Again, Defendant agreed to defend, subject to a reservation
of rights. See Dkt. No. 43–1 at 197–204. In its reservation of
rights, Defendant states that the Policy at issue does not cover
“property damage … arising out of … a defect, deficiency,
inadequacy, or danger condition in ‘your product’ or ‘your
work.’ ” Dkt. No. 61 at 25; 63–3 at 56.
The Court cannot grant summary judgment on Defendant’s
declaratory judgment claim as requested because California
law does not apply to the selection of independent counsel
in this case. That said, after reviewing the current record, the
Court does not find that summary judgment in Defendant’s
favor is proper at this juncture, even under Texas law. A
review of the reservation of rights and the accompanying facts
does not establish as a matter of law that any findings in the
Underlying Litigation would not affect Defendant’s coverage
claims. Defendant argues that, because the construction
causes of action are based upon strict liability—either the
defects exist or they do not—and because other causes of
action will make no findings of intent or on whether the
claims constitute property damage caused by an occurrence,
the results of the Underlying Litigation would have no bearing
on coverage. See Dkt. No. 67 at 12–14.
In response, Plaintiff does not specifically point this Court
to evidence of a conflict that absolutely exists or of
Defendant’s selected counsel’s taking a position that is at odds
with Plaintiff’s favored course of action in the Underlying
Litigation. Rather, Plaintiff presents arguments regarding,
and evidence that, the findings in the Underlying Litigation
could ultimately affect Plaintiff’s coverage rights. See Dkt.
Centex Homes v. Lexington Ins. Co., Slip Copy (2014)
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 8
No. 61 at 25. For instance, it could be that product defects
or workmanship errors by other parties could exist in the
Underlying Litigation, and the Court cannot determine, based
on the record before it, whether it would behoove any party, in
the Underlying Litigation or the coverage litigation, to focus
blame on those entities or defects. Plaintiff appears to indicate
that any such decisions could create a conflict of interest.
See Dkt. No. 61 at 25. Defendant has presented insufficient
evidence that it is not planning to take any positions that might
affect its coverage responsibilities.
*11 Defendant did not present evidence that proves, as a
matter of law, it would not be in its interest to take positions
in the Underlying Litigation that might support its position
regarding coverage. Viewing all facts and draw all reasonable
inferences in the light most favorable to Plaintiff, the Court
cannot, on this record or at this time, conclude that there is
no genuine dispute as to any material fact and grant summary
judgment in Defendant’s favor on this declaratory judgment
claim. As such, Defendant’s motion for summary judgment
on this claim is DENIED.
c. Defendant’s claim that Plaintiff breached its duty to
cooperate under the Astoria Policy and Element Policy
by refusing to acknowledge Defendant had a right to
control the defense and select counsel and by insisting
Defendant continue to pay Newmeyer & Dillion’s fees
and costs.
Defendant’s remaining request for summary judgment on its
declaratory judgment counterclaim also fails. As the Court
has found that summary judgment is proper on neither
Defendant’s right to control defense or Plaintiff’s right (or lack
thereof) to select independent counsel, a finding that Plaintiff
breached its duty to cooperate under the Astoria Policy and
Element Policy by refusing to acknowledge Defendant had a
right to control the defense and select counsel and by insisting
Defendant continue to pay Newmeyer & Dillion’s fees and
costs likewise cannot be made at this time. Neither party
presents evidence to the contrary.
As such, Defendant has not shown that there is no genuine
dispute as to any material fact, and Defendant’s motion for
summary judgment on this declaratory judgment action is
DENIED.
Conclusion
Defendant’s Motion for Partial Summary Judgment [Dkt. No.
43] is DENIED, and Plaintiff’s motion to strike [Dkt. No. 68]
is DENIED as moot.
SO ORDERED.
MEMORANDUM OPINION & ORDER
ON PLAINTIFF’S MOTION TO DISMISS
DEFENDANT’S COUNTERCLAIMS
This is a civil action related to the defendant’s duty to
defend and accompanying obligations. See Dkt. No. 66.
Plaintiff Centex Homes filed a Motion to Dismiss certain
of Defendant Lexington Insurance Company’s affirmative
defenses and counterclaims. See Dkt. No. 35. Defendant
filed its response [Dkt. No. 51] and Plaintiff filed a reply
[Dkt. No. 56], asserting their respective positions. Plaintiff’s
Motion to Dismiss Defendant’s Counterclaims [Dkt. No. 35]
is DENIED.
Background
In its most recent pleading, Plaintiff asserts causes of action
for breach of contract and violations of Chapters 541 and
542 of the Texas Insurance Code. See Dkt. No. 66 at 11–
13. 1 In its Answer to Plaintiff’s Fourth Amended Complaint
and Counterclaim (“Answer”), Defendant asserted numerous
affirmative defenses and certain counterclaims. Plaintiff
argues that the Court should strike or dismiss Defendant’s
counterclaims because they are subsumed by, and redundant
of, Plaintiff’s affirmative claims and Defendant’s affirmative
defenses and because they fail to state a claim on which
relief can be granted. More specifically, Plaintiff argues that
Defendant’s claim for declaratory relief is “nothing more
than a recitation of the same affirmative defenses it has
pleaded in opposition to Plaintiff’s Second Amended Original
Complaint” and therefore does not raise any new issue that is
not already subsumed within Plaintiff’s complaint. See Dkt.
No. 35 at 2. Plaintiff claims that Defendant’s counterclaims
for breach of contract and breach of the implied covenant of
good faith should be dismissed for failure to state a claim
on which relief can be granted. See id. Plaintiff contends
that, under both Texas and California law, an insured’s duty
to cooperate is only a condition precedent to coverage and
cannot give rise to an affirmative cause of action by an insurer.
See id.; Dkt. No. 56 at 14–20.
Centex Homes v. Lexington Ins. Co., Slip Copy (2014)
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1 Plaintiff filed its Motion to Dismiss in relation to its
Second Amended Complaint and Defendant’s Second
Amended Answer. However, at an August 9, 2013
hearing, the Court requested that Plaintiff file an
amended Complaint to properly identify the member
entities of Centex Real Estate Holding, L.P. as well
as the principal place of business of each of Centex’s
general partners. Plaintiff further amended its complaint
on November 6, 2013. The amendments were all
related to the party identification. Defendant filed its
Fourth Amended Answer in response to the amended
complaints. As such, the substance of the allegations in
the Fourth Amended Complaint and Answer remain the
same as those found in the second amended complaint
and answer. Because the Fourth Amended Answer and
Complaint are the live pleadings, however, the Court will
refer to those documents throughout the course of this
Opinion.
*12 Defendant responds that its request for declaratory
relief duplicates neither Plaintiff’s claims nor Defendant’s
affirmative defenses and that Plaintiff does not provide any
examples or evidence suggesting otherwise. See Dkt. No. 51
at 3–6. As to Defendant’s breach of contract and covenant
of good faith claims, Defendant argues that California law
and Texas law differ on the issue, that California law does
recognize such affirmative causes of action, that California
law applies, and that Defendant therefore sufficiently stated a
viable claim on which relief may be granted.
Legal Standards
1. Motions to Strike under Federal Rule of Civil Procedure
12(f).
Under Federal Rule of Civil Procedure 12(f), the Court
“may strike from a pleading an insufficient defense or any
redundant, immaterial, impertinent, or scandalous matter.”
FED. R. CIV. P. 12(f). The power to strike a pleading is
within the Court’s discretion but should be sparingly used. See
United States v. Coney, 689 F.3d 365, 379 (5th Cir.2012). The
motion to strike on grounds of immateriality or impertinence
“ ‘should be granted only when the pleading to be stricken
has no possible relation to the controversy.’ ” Id. (quoting
Augustus v. Bd. of Pub. Instruction, 306 F.2d 862, 868 (5th
Cir.1962)). Further, matter is not “scandalous” for purposes
of Rule 12(f) if it is “directly relevant to the controversy at
issue and [is] minimally supported in the record.” Id.
With regard to striking alleged defenses, “although motions to
strike a defense are generally disfavored, a Rule 12(f) motion
to dismiss a defense is proper when the defense is insufficient
as a matter of law.” Kaiser Aluminum & Chemical Sales,
Inc. v. Avondale Shipyards, Inc., 677 F.2d 1045, 1057 (5th
Cir.1982).
“Both because striking a portion of a pleading is a drastic
remedy, and because it often is sought by the movant simply
as a dilatory tactic, motions under Rule 12(f) are viewed with
disfavor and are infrequently granted.” Jacobs v. Tapscott,
No. 3:04–cv1968–D, 2004 WL 2921806, at *2 (N.D.Tex.
Dec.16, 2004), aff’d on other grounds, 277 F. App’x 483 (5th
Cir.2008). And Rule 12(f) only applies to pleadings as defined
by Fed.R.Civ.P. 7(a). See, e.g., 5C Charles Alan Wright et
al., FED. PRAC. & PROC. 1380 & n. 8.5 (3d ed. 2012)
(“Rule 12(f) motions only may be directed towards pleadings
as defined by Rule 7(a); thus motions, affidavits, briefs, and
other documents outside of the pleadings are not subject to
Rule 12(f).”); Groden v. Allen, No. 3:03–cv–1685–D, 2009
WL 1437834, at *3 (N.D.Tex. May 22, 2009) (Rule 12(f)
“does not permit the Court to strike motions or matters within
them because the rule applies only to pleadings”).
2. Motions to Dismiss under Federal Rule of Civil
Procedure 12(b)(6).
In deciding a Federal Rule of Civil Procedure 12(b)(6)
motion, the Court must “accept all well-pleaded facts as true,
viewing them in the light most favorable to the plaintiff.” In
re Katrina Canal Breaches Litig., 495 F.3d 191, 205–06 (5th
Cir.2007) (internal quotations omitted). To state a claim on
which relief may be granted, plaintiff must plead “enough
facts to state a claim to relief that is plausible on its face,”
Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct.
1955, 167 L.Ed.2d 929 (2007), and must plead those facts
with enough specificity “to raise a right to relief above the
speculative level,” id. at 555. “A claim has facial plausibility
when the plaintiff pleads factual content that allows the court
to draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S.
662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). “The
plausibility standard is not akin to a ‘probability requirement,’
but it asks for more than a sheer possibility that a defendant
has acted unlawfully.” Id. “A claim for relief is implausible on
its face when ‘the well-pleaded facts do not permit the court to
infer more than the mere possibility of misconduct.’ ” Harold
H. Huggins Realty, Inc. v. FNC, Inc., 634 F.3d 787, 796 (5th
Cir.2011) (quoting Iqbal, 556 U.S. at 679).
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*13 While, under Federal Rule of Civil Procedure 8(a)(2),
a complaint need not contain detailed factual allegations, the
plaintiff must allege more than labels and conclusions, and,
while a court must accept all of the plaintiff’s allegations as
true, it is “ ‘not bound to accept as true a legal conclusion
couched as a factual allegation.’ ” Iqbal, 556 U.S. at
678 (quoting Twombly, 550 U.S. at 555). A threadbare or
formulaic recitation of the elements of a cause of action,
supported by mere conclusory statements, will not suffice.
See id.
A court cannot look beyond the pleadings in deciding a Rule
12(b) (6) motion. See Spivey v. Robertson, 197 F.3d 772,
774 (5th Cir.1999). Pleadings in the Rule 12(b)(6) context
include attachments to the complaint. See In re Katrina Canal
Breaches Litig., 495 F.3d 191, 205 (5th Cir.2007). Documents
“attache[d] to a motion to dismiss are considered to be part of
the pleadings, if they are referred to in the plaintiff’s complaint
and are central to her claim.” Collins v. Morgan Stanley
Dean Witter, 224 F.3d 496, 498–99 (5th Cir.2000) (internal
quotation marks omitted). “Although the Fifth Circuit has not
articulated a test for determining when a document is central
to a plaintiff’s claims, the case law suggests that documents
are central when they are necessary to establish an element
of one of the plaintiff’s claims. Thus, when a plaintiff’s
claim is based on the terms of a contract, the documents
constituting the contract are central to the plaintiff’s claim.”
Kaye v. Lone Star Fund v. (U.S.), L.P., 453 B.R. 645, 662
(N.D.Tex.2011). “However, if a document referenced in the
plaintiff’s complaint is merely evidence of an element of the
plaintiff’s claim, then the court may not incorporate it into the
complaint.” Id.
In addition, “it is clearly proper in deciding a 12(b)(6) motion
to take judicial notice of matters of public record.” Norris v.
Hearst Trust, 500 F.3d 454, 461 n. 9 (5th Cir.2007); accord
Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308,
322, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2008) (directing courts
to “consider the complaint in its entirety, as well as other
sources courts ordinarily examine when ruling on Rule 12(b)
(6) motions to dismiss, in particular, documents incorporated
into the complaint by reference, and matters of which a court
may take judicial notice”).
Analysis
Plaintiff argues that the Court should strike Defendant’s
declaratory judgment claims because they are subsumed by
the resolution of Plaintiff’s affirmative claims and because
they are redundant of Defendant’s affirmative defenses.
Plaintiff also contends that Defendant’s remaining causes
of action must be dismissed because such claims do not
constitute affirmative causes of action for a defendant under
Texas or California law.
1. Defendant’s declaratory judgment actions are not
redundant.
Plaintiff moves to strike Defendant’s claim for declaratory
relief because the claims are “nothing more than a recitation”
of the same affirmative defenses that Defendant pleaded and
the affirmative claims that Plaintiff asserted. See Dkt. No. 35
at 2. More specifically, Plaintiff claims that the declaratory
relief sought overlaps with Defendant’s Second, Fifth, Ninth,
Tenth, and Seventeenth Affirmative Defenses. See id. at 3–
4. Plaintiff does not specifically identify the overlap between
its claims and Defendant’s claims but states only that the
counterclaims are “subsumed” by matters raised in Plaintiff’s
complaint. Id. at 4.
*14 In response Defendant argues that Plaintiff does
not identify any of its allegations that mirror Defendant’s
request for declaratory relief and that all of the cases on
which Plaintiff relies involve a situation wherein a plaintiff’s
affirmative claims and a defendant’s counter claims mirror
one another. See Dkt. No. 51 at 3. Even if that were not the
case, Defendant contends that its affirmative defenses and
requests for declaratory relief are distinct. See id .
Federal courts have broad discretion to grant or refuse
declaratory judgment. See Torch, Inc. v. LeBlanc, 947 F.2d
193, 194 (5th Cir.1991). Federal Rule of Civil Procedure 12
does permit a court to strike or dismiss a counterclaim on the
basis that it is redundant. To do so, however, the Court should
consider “whether the declaratory judgment ‘serves a useful
purpose’ by asking ‘whether resolution of plaintiff’s claim,
along with the affirmative defenses asserted by defendants,
would resolve all questions raised by the counterclaim.’ ” In
re ATP Oil & Gas Corp., No. 12–36187, 2013 WL 5308862,
at *1 (Bankr.S.D.Tex. Sept.18, 2013); see also Redwood
Resort Props., LLC v. Homes Co. Ltd., No. 3:06–cv–1022–
D, 2007 WL 1266060, at *4–*5 (N.D.Tex. Apr.30, 2007).
This analysis requires the Court to determine whether what
a counterclaim requests is the opposite of the affirmative
causes of action pleaded. See ATP Oil & Gas Corp., 2013
WL 5308862 at *1; Redwood Resort Props., LLC, 2007 WL
1266060 at *4–*5. In undertaking this analysis, the Court
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should consider “potential qualitative differences between
merely prevailing in Plaintiff’s lawsuit, and receiving an
affirmative declaration of rights to a declaratory judgment.”
Blackmer v. Shadow Creek Ranch Development Co. Ltd.
P’ship, No. H–07–681, 2007 WL 7239968, at *1 (S.D.Tex.
June 26, 2007). This is so even when “[t]here is a high
degree of congruence” between Defendant’s counterclaims
and affirmative defenses. Id.
Plaintiff did not specify which of its affirmative causes of
action subsumed Defendant’s declaratory judgment actions.
In its Breach of Contract cause of action, Plaintiff alleges
that—and thereby necessitates a judicial finding whether
—Defendant breached its obligations by (1) its failure to
pay and/or (2) its unreasonable delay in (i) accepting its
duty to defend and/or pay Plaintiff’s defense costs and (ii)
providing Defendant’s coverage position with respect to the
underlying litigation. See Dkt. No. 66 at 11–12. This cause
of action would also include determining whether Defendant
had a duty to defend, but neither party seems to dispute
that allegation. See Dkt. No. 117 at 2–3. Plaintiff also
alleges the Defendant’s failure to make payments, or its delay
in making payments, violated the Texas Insurance Code.
Plaintiff alleges additional violations of the Texas Insurance
Code, including Defendant’s failure to attempt in good faith to
effectuate a prompt, fair, and equitable settlement of a claim
with respect to which Defendant’s liability had become clear;
to provide a reasonable explanation of Defendant’s failure
to pay all claims; to provide a reservation of rights letter
within a reasonable time frame; and to conduct a reasonable
investigation before failing to pay defense costs. See Dkt. No.
66 at 12–13.
*15 In its declaratory judgment cause of action, Defendant
seeks a declaration that (1) Defendant has a right to control
the defense of the relevant claims; (2) Plaintiff is not entitled
to appoint independent counsel under California Civil Code;
and (3) Plaintiff’s refusal to acknowledge that Defendant has
the right to control the defense and select counsel and its
insistence that Defendant continue to pay the fees and costs
of the law firm selected by Plaintiff was a breach of Plaintiff’s
duty to cooperate under the relevant policies. See Dkt. No. 73
at 19–20.
These claims are not redundant. If Defendant had requested a
declaratory judgment that it had timely and properly accepted
its duty to defend and to pay Plaintiff’s defense costs and that
it had provided Defendant’s coverage position with respect to
the underlying litigation, then the claims would be redundant.
So too would there be redundancy if Defendant sought a
declaration that it did not fail (1) to make payments in a
timely fashion; (2) to attempt in good faith to effectuate
a prompt, fair, and equitable settlement of a claim; (3) to
provide a reasonable explanation of Defendant’s failure to pay
all claims; (4) to provide a reservation of rights letter within
a reasonable time frame; and (5) to conduct a reasonable
investigation before failing to pay defense costs.
Instead, Defendant seeks a different declaration—essentially,
that it had the right to control the defense and appoint
the counsel. Under Plaintiff’s Complaint, the Court could—
hypothetically—find that Defendant breached its duties and
violated the Texas Insurance Code without an affirmative
determination regarding whether Defendant had a right to
control the defense and appoint counsel.
Plaintiff provides the Court with a comparison of the
affirmative defenses that it contends are redundant to
Defendant’s declaratory judgment actions. See Dkt. No. 56
at 11. The Court reviewed the requests and the affirmative
defenses, and, while some level of similarity does exist,
they are not redundant. A declaration that Defendant has a
right to control the defense is not the same as an assertion
that Defendant has no liability because Plaintiff’s acts were
unauthorized. The Court could—again, hypothetically—find
that Plaintiff’s acts were unauthorized but make no finding as
to why they were unauthorized. And a reservation of rights
to contend that a law other than Texas law applies is not a
declaration that Plaintiff cannot appoint independent counsel
under California law. These examples demonstrate “the
potential qualitative difference between merely prevailing in
Plaintiff’s lawsuit, and receiving an affirmative declaration of
rights pursuant to a declaratory judgment .” Blackmer, 2007
WL 7239968 at *1.
The Court also notes that in many decisions on which
Plaintiff relies, the courts dismissed the plaintiff’s declaratory
judgment actions because they were redundant of other
causes of action pleaded by plaintiff.See Dkt. No. 56 at 13
(citing Cypress/Spanish Ft. I, L.P. v. Prof’l Serv. Indus., Inc.,
814 F.Supp.2d 698, 710 (N.D.Tex.2011); Kougl v. Xspedius
Mgmt. Co. of Dallas/Fort Worth, L.L.C., No. 3:04–cv–2518–
D, 2005 U.S. Dist. LEXIS 10557, at *14–*15 (N.D. Tex. June
1, 2005)). That is not the situation here.
*16 In light of the fact that Rule 12(f) motions are
often viewed with disfavor and are infrequently granted, the
Court concludes that Plaintiff did not meet its burden under
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Rule 12(f) for the Court to strike Defendant’s declaratory
judgment claims. The Court finds that declaratory judgment
counterclaim is not a mirror image of Plaintiff’s causes of
action or redundant of its own affirmative defenses.
As such, the Court DENIES Plaintiff’s motion to strike
Defendant’s declaratory judgment causes of action.
2. Dismissal of Defendant’s counterclaims under Rule
12(b)(6) is not warranted.
To determine whether Defendant sufficiently pleaded a cause
of action under Rule 12(b)(6), the Court must determine
whether the alleged causes of action—breach of contract and
good faith—can stand as affirmative causes of action. This
turns on a choice-of-law analysis.
Before deciding which state’s substantive law should control
the issues raised by the parties here, “the Court must first
determine which choice-of-law rules should be applied.” In
re Soporex, Inc. ., 446 B.R. 750, 761 (Bankr.N.D.Tex.2011).
Here, both parties assert that Texas choice-of-law rules should
determine the applicable laws in this case. See Dkt. No. 51 at
6; Dkt. No. 56 at 9.
As noted by both parties, Texas courts utilize the “most
significant relationship” test to determine which state’s law
applies to a particular substantive issue. See Coghlan v.
Wellcraft Marine Corp., 240 F.3d 449, 452 n. 2 (5th Cir.2001)
(citing Duncan v. Cessna Aircraft Co., 665 S.W.2d 414, 421
(Tex.1984)). This test is based on the Restatement (Second)
of Conflict of Laws and utilizes a multi-factor methodology
to determine which state has the most significant relationship
to the substantive issues involved in a dispute. See Duncan,
665 S.W.2d at 421. Deciding which state’s laws should govern
an issue “is a question of law for the court to decide.”
Hughes Wood Products, Inc. v. Wagner, 18 S.W.3d 202, 204
(Tex.2000) (citing Duncan, 665 S.W.2d at 421). See also
McKinney BB v. U.S. Realty Advisors, LLC, No. 01–11483,
2003 U.S.App. LEXIS 28011, at *18 (5th Cir. Jan. 24, 2003)
(“[T] question of which state’s law to apply is a question
of law.”); Janvey v. Suarez, No. 3:10–cv–2581–N, 2013
WL 5663107, at *3 (N.D.Tex. Oct.17, 2013). But, this legal
determination involves a factual inquiry. See Hughes Wood
Products, 18 S.W.3d at 204; Suarez, 2013 WL 5663107, at
*3. That is, “the party urging application of another state’s
substantive law [must] furnish the Court with ‘sufficient
information’ to establish that the law of another state applies.”
Janvey v. Alguire, 846 F.Supp.2d 662, 671 (N.D.Tex.2011)
(quoting Holden v. Capri Lighting, Inc., 960 S.W.2d 831,
833 (Tex.App.-Amarillo 1997, no pet.)) (internal quotations
omitted). Absent such sufficient information, “the failure
to provide adequate proof of choice of law … results in
a presumption that the law of the foreign jurisdiction is
identical to the law of Texas.” Alguire, 846 F.Supp.2d at 671
(quoting Pittsburgh Corning Corp. v. Walters, 1 S.W.3d 759,
769 (Tex.App.-Corpus Christi 1999, pet. denied)) (internal
brackets omitted). When two states’ laws are substantially
the same, this precludes the need to undertake a choice-oflaw
analysis. See Lexxus Int’l, Inc. v. Loghry, 512 F.Supp.2d
647, 668 n. 17 (N.D.Tex.2007); cf. Fraud–Tech, Inc. v.
Choicepoint, Inc., 102 S.W.3d 366, 377–78 (Tex.App.-Fort
Worth 2003, pet. denied) (“Before undertaking a choice of
law analysis, we look to whether a conflict of law exists. If no
conflict exists on the issues, we need not decide which state’s
law applies.”).
*17 Because no choice-of-law analysis would be required
if California and Texas law were consistent on this issue,
the Court must first determine if these jurisdictions’ laws
differ with respect to whether Defendant’s alleged breach
constitutes an affirmative cause of action. Defendant alleges
Plaintiff was “mandated to cooperate” with Defendant under
the terms of some of the policies and that Plaintiff breached
this duty. Dkt. No. 73 at 21. Defendant’s breach of implied
covenant of good faith and fair dealing claim is also based on
Plaintiff’s alleged failure to cooperate. See id.
Plaintiff states that the cases on which Defendant relies
do not support Defendant’s contention that these causes of
action are plausible even under California law. Rather than
explicitly citing to or relying on cases denying that such
a cause of action exists, however, Plaintiff distinguishes
the cases on which Defendant relies and cites to several,
mostly dated California cases that, on review, do not fully
support its position. See Dkt. No. 56 at 15–18. While an
insured’s breach of a cooperation clause can act as a defense
to its breach of contract claim, see Cybernet Ventures,
Inc. v. Hartford Ins. Co. of the Midwest, 168 F. App’x
850, 852 (9th Cir. Feb.23, 2006), California courts also
recognize an affirmative cause of action, sounding in breach
of contract, for the causes of action asserted by Defendant,
see Sierra Pac. Indus. v. Am. States Ins. Co., 883 F.Supp.2d
967, 976–77 (E.D.Cal.2012); Travelers Prop. v. Centex
Homes, No. C 10–02757 CRB, 2011 WL 1225982, at *6
(N.D.Cal. Apr.11, 2011) (“The right to control the defense
imposes upon an insured the duty to cooperate with the
insurer with regards to its defense. Failure to comply with a
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policy’s cooperation clause constitutes breach of the insurance
contract.” (internal citations omitted)); Cal. Fair Plan Assoc.
v. Politi, 220 Cal.App.3d 1612, 1618–19, 270 Cal.Rptr. 243
(Cal.Ct.App.1990) (finding that an insurer could bring an
affirmative breach of covenant of good faith and fair dealing
claim but could only recover contract damages). In fact,
under California law, an “insurer’s duty is unconditional
and independent of the performance of plaintiff’s contractual
obligations.” Gruenberg v. Aetna Ins. Co. ., 9 Cal.3d 566, 108
Cal.Rptr. 480, 510 P.2d 1032, 10401 (Cal.1973). This stands
in contrast to the position put forth by Plaintiff that “ ‘the only
applicable case law treats cooperation clauses as conditions
precedent, relieving an insurer of liability rather than creating
an affirmative cause of action against its insured.’ ” Dkt. No.
35 at 6–7 (quoting The Phila. Indem. Ins. Co. v. Stebbins Five
Companies, Ltd., No. 3:02–cv–1279–M, 2002 WL 31875596
(N.D.Tex. Dec.20, 2002)).
Plaintiff correctly points out that Texas does not recognize
an affirmative cause of action for a breach of cooperation
clause or breach of good faith. See Progressive County Mut.
Ins. Co. v. Trevino, 202 S.W.3d 811, 815–16 (Tex.App.-San
Antonio 2006, no pet.); Evanston Ins. Co. v. Tonmar, L.P.,
669 F.Supp.2d 725, 732 (N.D.Tex.2009); Phila. Indem. Ins.
Co., 2002 WL 31875596 at *6. To support its contention
that Texas recognizes such a cause of action, Defendant
relies on cases that are not on point. See Dkt. No. 51 at
9 (citing USAA County Mut. Ins. Co. v. Cook, 241 S.W.3d
93, 101 (Tex.App.-Houston [1st Dist.] 2007, no pet.); CGL
Underwriters v. Edison Chouest Offshore, inc., 8 F.3d 21,
at *7–*8 (5th Cir. Oct.22, 1993)). The decisions on which
Defendant relies do discuss a “breach of the co-operation
clause” found in insurance policies but do so in the context of
a breach of cooperation clause defense. Such a defense does
exist: A defendant may assert that a breach of such a duty
relieved the insurer of liability under the policy, see Filley v.
Ohio Cas. Ins. Co., 805 S.W.2d 844, 847 (Tex.App.-Corpus
Christi 1991, writ denied), but that is not the same as an
affirmative cause of action.
*18 Thus, Texas and California law do differ on this issue.
The Court must therefore undertake a choice-of-law analysis
to determine which law applies.
“Under Texas choice-of-law principles, contract disputes are
governed by ‘the law of the state with the most significant
relationship to the particular substantive issue.’ ” W.R. Grace
& Co. v. Cont’l Cas. Co., 896 F.2d 865, 873 (5th Cir.1990)
(citing Duncan, 665 S.W.2d at 421); Schneider Nat. Transp.
v. Ford Motor Co., 280 F.3d 532, 536 (5th Cir.2002).
This is the test articulated by the Restatement (Second) of
Conflict of Laws sections 188 and 193 and their comments.
Defendant maintains that the location of the insured risk
receives controlling weight in determining the proper law to
be applied. See Dkt. No. 51 at 6. According to Defendant,
because the insurance contracts cover insured projects located
in California—the Astoria Project and the Element Project—
the parties’ presumed intention would be that California law
applies because that is almost certainly where any liability for
property damages or bodily injury would arise. See id. at 6–
7. Plaintiff did not reply to Defendant’s argument, relying on
its contention that no conflict of law exists.
Restatement (Second) of Conflict of Laws section 188
provides that “[t]he rights and duties of the parties with
respect to an issue in contract are determined by the local law
of the state which, with respect to that issue, has the most
significant relationship to the transaction and the parties….”
RESTATEMENT (SECOND) OF CONFLICT OF LAWS
§ 188(1) (1971). Section 188 attempts to “unearth[ ] and
uphold[ ] contracting parties’ intent as to the governing law.”
Mayo v. Hartford Life Ins. Co., 354 F.3d 400, 404 (5th
Cir.2004). While several types of contacts are provided in
Section 188, Section 193 further provides that the validity
of an insurance contract, and the rights created thereby,
should be determined by the law of the state where the
insured risk is located. See RESTATEMENT (SECOND)
OF CONFLICT OF LAWS § 193; see also Fulcrum Ins.
Co. v. Barber, 2006 WL 4511947, at *3 (W.D.Tex. Oct.24,
2006) (“It does not matter where the particular act which
invokes the policy’s coverage happens. ‘Instead, the court
must look to the principle location of the insured risk during
the term of the policy to determine the location of the subject
matter of the contract.’ ” (internal citations omitted)). Section
193 also states that its choice-of-law provision based on the
location of the insured risk applies “unless with respect to
the particular issue, some other state has a more significant
relationship … to the transaction and the parties, in which
event the local law of the other state will be applied.” Id.;
see also Zurich Am. Ins. Co. v. Vitus Marine, LLC, No. H–
11–3022, 2011 WL 4972025, at *4 (S.D.Tex. Oct.19, 2011)
(finding a state to have more significant relationship than
the insured’s location where the dispute involved contract
negotiation and the negotiation occurred in a state other than
the one in which the insured was located).
*19 The Court is of the opinion that California law applies to
Defendant’s counterclaims. Defendant’s counterclaims relate
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only to the Astoria Policy and Element Policy. These policies
cover condominiums located in California. See Dkt. No. 73 at
22–23. Moreover, Plaintiff alleges that Defendant breached
its duty to defend related to cases filed and litigated in
California, the causes of action asserted against Plaintiff in
those cases involve primarily California law, and Plaintiff’s
counsel representing it in connection with the California
condominiums is located in California. See Dkt. No. 66 at 4–
5. Where the events giving rise to the litigation, the defense
costs, and the attorneys are all located in one state, that
state’s law applies. See Schneider Nat. Transp., 280 F.3d
at 536 (where the litigation giving rise to a case occurred
in Texas, the defense costs were incurred in Texas, and
the defending attorneys were located in Texas, Texas has
the most significant relationship to the substantive issues to
be resolved and Texas law was appropriate). Accordingly,
California law should apply.
As explained above, this Court is not persuaded by Plaintiff’s
argument that, under California law, Defendant cannot
proceed on its breach of duty to cooperate and breach of
duty of good faith and fair dealing claims as a matter of law.
Moreover, accepting all well-pleaded facts as true, viewing
them in the light most favorable to Defendant, as the Court
must, Defendant has met its pleading burden. See In re
Katrina Canal Breaches Litig., 495 F.3d at 205–06. In its
counterclaims, Defendant provides a factual foundation and
allegations that put Plaintiff on notice of its claims. See Dkt.
No. 73 at 21–22. Plaintiff does not seem to argue otherwise. In
any event, such allegations constitute more than a threadbare
or formulaic recitation of the elements of a cause of action.
See Iqbal, 556 U.S. at 678.
As such, Plaintiff’s motion to dismiss Defendant’s second and
third causes of action is DENIED.
Conclusion
Plaintiff’s Motion to Dismiss Defendant’s Counterclaims
[Dkt. No. 35] is DENIED.
SO ORDERED.

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