Duty to Defend and Indemnify in Texas Insurance Claim Litigation

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
MID-CONTINENT CASUALTY §
COMPANY, §
§
Plaintiff, §
§
v. § CIVIL ACTION NO. H-06-3451
§
HAMMONDS TECHNICAL SERVICES, §
INCORPORATED, §
§
Defendant. §
MEMORANDUM AND ORDER
Pending is Plaintiff Mid-Continent Casualty Company’s Motion
for Summary Judgment (Document No. 14). Defendant filed no
response, and the motion is therefore deemed unopposed pursuant to
Local Rule 7.4. After carefully considering the motion and the
applicable law, the Court concludes as follows.
I. Background
Plaintiff Mid-Continent Casualty Company (“Plaintiff”) brought
this case for declaratory judgment that it has no duty to defend or
indemnify Defendant Hammonds Technical Services, Incorporated,
(“Defendant”) in a products liability lawsuit filed in Illinois by
Nancy Shaw (“Ms. Shaw”), styled Cause No. 05-L-773 (“Underlying
1 The Underlying Suit is captioned: Nancy Shaw, Individually
and as Special Administrator of the Estate of Francis N. Shaw,
Deceased v. Ashland, Inc. et al. See Document No. 14, ex. A at 1.
It was filed in the Third Judicial Circuit Court of Madison County,
Illinois. Id.
2
Suit”).1 Ms. Shaw filed the Underlying Suit against about 50
parties, including Defendant, a manufacturer of fuel injectors and
fuel pumps for the airline industry, for the wrongful death of her
husband Francis N. Shaw (“the deceased” or “Decedent”). See
Document No. 14, ex. A at 1. The complaint in the Underlying Suit
alleges that the deceased was an aircraft mechanic who worked for
27 years for various employers at Lambert International Airport in
St. Louis, Missouri, including for Trans-World Airlines from 1986
to 2001 and for American Airlines from 2001 to 2003. Id., ex. A
at 3. In 2003, he was diagnosed with Non-Hodgkin’s Lymphoma and
died in February, 2005. Id. It is alleged that the deceased was
an ordinary user of benzene and benzene products during the course
of his long employment at the airport in St. Louis, and elsewhere
while engaged in non-occupational work projects (including, but
not limited to, home and automotive repairs, maintenance and
remodeling), that the numerous defendants’ benzene products
resulted in an unreasonably dangerous condition, and that his
exposure to these products caused his fatal illness and death.
Id., ex. A at 4.
The commercial general liability insurance policies and excess
coverage policies issued by Plaintiff to Defendant were in effect
2 The policies at issue are: CGL-221374 and XS-103555, the
commercial general liability insurance policy and excess coverage
policy, respectively, effective from July 18, 1996 to July 18,
1997; and CGL-236255 and XS-104484, the commercial general
liability insurance policy and excess coverage policy,
respectively, effective from July 18, 1997 to July 18, 1998. See
id., ex. B1-B4.
3
from July 18, 1996 to July 18, 1998.2 Id. at 3, 4, ex. B1 at
MC0001. After Ms. Shaw’s suit was filed, Defendant sought defense
and indemnity from Plaintiff under the insurance policies. Id. at
3-4.
Both of the commercial general liability policies and both of
the excess coverage policies exclude coverage for bodily injury
included in the “products-completed operations hazard” exclusion.
See Document No. 14, ex. B1 at MC0019, B2 at MC0065, B3 at MC0097,
B4 at MC0131. The policies define “products-completed operations
hazard” as
all “bodily injury” . . . occurring away from premises
[Defendant] own[s] or rent[s] and arising out of
“[Defendant’s] product” or “[Defendant’s] work” except:
(1) Products that are still in [Defendant’s]
physical possession; or
(2) Work that has not yet been completed or
abandoned.
[]“[Defendant’s] work” will be deemed completed at the
earliest of the following times:
(1) When all of the work called for in [Defendant’s]
contract has been completed.
(2) When all of the work to be done at the site has
been completed if [Defendant’s] contract calls
for work at more than one site.
(3) When that part of the work done at a job site
has been put to its intended use by any person
4
or organization other than another contractor
or subcontractor working on the same project.
Work that may need service, maintenance, correction,
repair or replacement, but which is otherwise complete,
will be treated as completed.
Id., ex. B1 at MC0032-33; see also id., ex. B2 at MC0057, B3 at
MC0093, B4 at MC0124 (using substantially similar language in the
other three policies to define “products-completed operations
hazard”). In other words, bodily injuries occurring away from
Defendant’s premises, or arising out of completed products no
longer controlled by Defendant, are not covered under these
policies. See id. According to the policies, Defendant’s premises
were located in Houston, Texas. See id., ex. B1 at MC0039, ex. B3
at MC0080.
Additionally, the insurance policies exclude coverage for
bodily injuries expected or intended from the standpoint of the
insured, see id., ex. B1 at MC0022, B2 at MC0043, B3 at MC0083, B4
at MC0110; and bodily injury occurring outside the policy period,
see Document No. 14, ex. B1 at MC0022, ex. B2 at MC0042, B3 at
MC0083, B4 at 0109.
Plaintiff contends its policies provide no coverage and it has
no duty to defend for the Underlying Suit because: (1) the claims
are excluded by the products-completed operations hazard
exclusions; (2) the claims are excluded by the expected or intended
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injury exclusions; and (3) the deceased’s illness did not occur
until after the policy periods expired. See Document No. 15.
II. Standards of Review
A. Summary Judgment Standard
Rule 56(c) provides that summary judgment “shall be rendered
forthwith 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). The moving party must “demonstrate
the absence of a genuine issue of material fact.” Celotex Corp. v.
Catrett, 106 S. Ct. 2548, 2553 (1986).
Once the movant carries this burden, the burden shifts to the
nonmovant to show that summary judgment should not be granted.
Morris v. Covan World Wide Moving, Inc., 144 F.3d 377, 380 (5th
Cir. 1998). A party opposing a properly supported motion for
summary judgment may not rest upon mere allegations or denials in
a pleading, and unsubstantiated assertions that a fact issue exists
will not suffice. Id. “[T]he nonmoving party must set forth
specific facts showing the existence of a ‘genuine’ issue
concerning every essential component of its case.” Id.
In considering a motion for summary judgment, the district
court must view the evidence “through the prism of the substantive
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evidentiary burden.” Anderson v. Liberty Lobby, Inc., 106 S. Ct.
2505, 2513 (1986). All justifiable inferences to be drawn from the
underlying facts must be viewed in the light most favorable to the
nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 106 S. Ct. 1348, 1356 (1986). “If the record, viewed in
this light, could not lead a rational trier of fact to find” for
the nonmovant, then summary judgment is proper. Kelley v. Price-
Macemon, Inc., 992 F.2d 1408, 1413 (5th Cir. 1993) (citing
Matsushita, 106 S. Ct. at 1351). “If, on the other hand, the
factfinder could reasonably find in [the nonmovant’s] favor, then
summary judgment is improper.” Id. Even if the standards of Rule
56 are met, a court has discretion to deny a motion for summary
judgment if it believes that “the better course would be to proceed
to a full trial.” Anderson, 106 S. Ct. at 2513.
A motion for summary judgment cannot, of course, be granted
simply because there is no opposition. Hetzel v. Bethlehem Steel
Corp., 50 F.3d 360, 362 n.3 (5th Cir. 1995). When no response is
filed, however, the Court may accept as undisputed the facts set
forth in support of the motion and grant summary judgment when a
prima facie showing for entitlement to judgment is made. See
Eversley v. Mbank Dallas, 843 F.2d 172, 174 (5th Cir. 1988); Rayha
v. United Parcel Serv., Inc., 940 F. Supp. 1066, 1068 (S.D. Tex.
1996).
3 Texas law governs this dispute. See Klumpe v. IBP, Inc.,
309 F.3d 279, 281 (5th Cir. 2002) (“In diversity cases, we apply
state substantive law together with the federal rules of
procedure.” (footnote omitted)); see also TEX. INS. CODE ANN. art.
21.42 (Vernon 2006) (“Any contract of insurance payable to any
citizen or inhabitant of this State by any insurance
company . . . shall be held to be a contract made and entered into
under and by virtue of the laws of this State relating to
insurance, and governed thereby . . . .”).
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B. Legal Standards Governing the Duty to Defend
“Under Texas law, an insurer may have a duty to defend a
lawsuit against its insured.”3 Primrose Operating Co. v. Nat’l Am.
Ins. Co., 382 F.3d 546, 552 (5th Cir. 2004). Texas courts employ
an “eight corners” or “complaint allegation” rule in determining
whether an insurer has a duty to defend. See id.; Northfield Ins.
Co. v. Loving Home Care, Inc., 363 F.3d 523, 528 (5th Cir. 2004)
(citing King v. Dallas Fire Ins. Co., 85 S.W.3d 185, 187 (Tex.
2002)); see also GuideOne Elite Ins. Co. v. Fielder Road Baptist
Church, 197 S.W.3d 305, 308-09 (Tex. 2006). “This rule ‘requires
the trier of fact to examine only the allegations in the
[underlying] complaint and the insurance policy in determining
whether a duty to defend exists.’” Canutillo Indep. Sch. Dist. v.
Nat’l Union Fire Ins. Co., 99 F.3d 695, 701 (5th Cir. 1996)
(quoting Gulf Chem. & Metallurgical Corp. v. Associated Metals
& Minerals Corp., 1 F.3d 365, 369 (5th Cir. 1993)); see also
Guideone, 197 S.W.3d at 308 (explaining the eight corners rule).
8
“Thus, the duty to defend arises only when the facts alleged
in the complaint, if taken as true, would potentially state a cause
of action falling within the terms of the policy.” Northfield, 363
F.3d at 528. “If a petition does not allege facts within the scope
of coverage, an insurer is not legally required to defend a suit
against its insured.” Nat’l Union Fire Ins. Co. of Pittsburgh, Pa.
v. Merchs. Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex.
1997)). An insurer can absolve itself of the duty to defend by
showing, within the confines of the eight corners rule, “that the
plain language of a policy exclusion or limitation allows the
insurer to avoid coverage of all claims.” Northfield, 363 F.3d at
528.
The focus of the inquiry is on the alleged facts, not on the
asserted legal theories. St. Paul Fire & Marine Ins. Co. v. Green
Tree Fin. Corp.-Tex., 249 F.3d 389, 392 (5th Cir. 2001). “Facts
outside the pleadings, even those easily ascertained, are
ordinarily not material to the determination[,] and allegations
against the insured are liberally construed in favor of coverage.”
GuideOne, 197 S.W.3d at 308 (citing Nat’l Union Fire Ins. Co. of
Pittsburgh, Pa., 939 S.W.2d at 141). Additionally, a court may not
attempt to “imagine factual scenarios which might trigger
coverage.” Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 939
S.W.2d at 142 (emphasis added).
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III. Discussion
Plaintiff contends that the injuries alleged in the Underlying
Suit were caused away from Defendant’s premises or by exposure to
completed fuel injectors and fuel pumps, thus bringing the injuries
under the products-completed operations hazard exclusions from
coverage under Defendant’s policies. See Document No. 14 at 10-14.
The policies state, in similar language, that Defendant does
not have coverage for bodily harm included within the “productscompleted
operations hazard” exclusion. See id., ex. B1 at MC0019,
B2 at MC0065, B3 at MC0097, B4 at MC0131. The policies define a
“products-completed operations hazard” to include all bodily injury
occurring away from the premises owned or leased by Defendant and
arising out of Defendant’s completed products unless the products
remain in Defendant’s physical possession or have not yet been
completed. See id., ex. B1 at MC0032, B2 at MC0057, B3 at MC0093,
B4 at MC0124; see also supra Section I (quoting the language of the
policies defining “products-completed operations hazard”). Thus,
injuries from completed products and off-premises injuries are
excluded under Defendant’s policies. Id. Moreover, the policies
treat products that require service, but are otherwise complete–
like fuel injectors or fuel filters on airplanes–as complete, and
therefore outside coverage as well. Id.
The Underlying Suit makes no allegation that the deceased ever
came onto Defendant’s premises in Houston, Texas. In fact, the
10
injuries are alleged to have occurred at distant locations, where
the deceased worked at Lambert International Airport in St. Louis,
Missouri, and in non-occupational projects such as home and
automotive projects. Id., ex. A at 3-4. Never is it alleged that
any of this occurred on or even near Defendant’s premises in
Houston, Texas.
The Underlying Suit also fails to allege that any unfinished
fuel injectors or fuel pumps of Defendant contributed to the
deceased’s illness and subsequent death. The policies require
injuries from products to arise from either uncompleted products or
products still under the control of Defendant–neither of which is
alleged in the underlying complaint. Additionally, the policies
expressly treat items requiring maintenance, such as fuel injectors
or fuel pumps encountered by airplane mechanics, as completed
products not subject to coverage.
In sum, the Underlying Suit fails to allege bodily harms to
the deceased that occurred either on the premises of Defendant, or
as the result of a non-completed fuel injector or fuel pump. The
“products-completed operation hazards” exclusions therefore apply.
Applying the eight corners rule, the policies issued by Plaintiff
to Defendant do not cover the harms alleged in the Underlying Suit.
See LaBatt Co. v. Hartford Lloyd’s Ins. Co., 776 S.W.2d 795, 798-
800 (Tex. App.–Corpus Christi 1989) (holding that a similar
11
products-complete hazard exclusion negated the insurers duty to
defend).
C. Duty to Indemnify
Plaintiff further seeks a declaration that it has no duty to
indemnify Defendant. Although Texas law generally considers that
issue justiciable only after the underlying action has been
concluded, there is an exception where, as here, “‘the same reasons
that negate the duty to defend likewise negate any possibility the
insurer will ever have a duty to indemnify.’” Northfield, 363 F.3d
at 536 (quoting Farmers Tex. County Mut. Ins. Co. v. Griffin, 955
S.W.2d 81, 84 (Tex. 1997)).
IV. Order
For the reasons set forth, it is hereby
ORDERED that Plaintiff Mid-Continent Casualty Company’s Motion
for Summary Judgment (Document No. 13) is GRANTED, and it is
ORDERED and ADJUDGED that:
1. Mid-Continent Casualty Company does not owe Hammonds Technical
Services, Inc., defense, indemnity or coverage under the
policies above for claims in the Underlying Suit because such
claims are excluded by the products-completed operations
hazard exclusions;
2. Mid-Continent Casualty Company is not obligated or liable to
Hammonds Technical Services, Inc., in connection with any
judgment or settlement which may be entered in the Underlying
Suit; and
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3. Mid-Continent Casualty Company is not obligated to pay any
costs taxed upon Hammonds Technical Services, Inc., in the
Underlying Suit, nor to pay on behalf of Hammonds Technical
Services, Inc., any sum that Hammonds Technical Services,
Inc., shall become legally obligated to pay as damages because
of or attendant to the Underlying Suit.
The Clerk will enter this Order, providing a correct copy to
all counsel of record.
SIGNED in Houston, Texas, this 27th day of November, 2007.
____________________________________
EWING WERLEIN, JR.
UNITED STATES DISTRICT JUDGE

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