Liberty Insurance Corporation v. Arch Insurance Company

PUSS. DISTRICT COURT |

NORTHURN DISTRICT OF TEXAS

IN THE UNITED STATES DISTRICT! COURT PTT ET)

NORTHERN DISTRICT OF TEXAS -ouay 201

FORT WORTH DIVISION MAY 14 2021 |

CLERK. U.S. DISTRICT COURT

BB escent

LIBERTY INSURANCE CORPORATION, § er EES

§

Plaintiff, §

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VS. § NO. 4:20-CV-098-A

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ARCH INSURANCE COMPANY, ET AL., 8&8

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Defendants. §

MEMORANDUM OPINION AND ORDER

Came on for consideration the motion of defendant TIG

Insurance Company (*TIG"’} for summary judgment. The court,

having considered the motion, the responses of plaintife,

Liberty Insurance Corporation, and third-party defendant, M.A.

Mortenson Companies, Ine. (“Mortenson”), the replies, the

record, and applicable authorities, finds as follows:

rT.

Underlying Facts

The record establishes the following undisputed facts:

On March 19, 2012, Mortenson and L.O. Transport, Inc.

("L,0,"}, entered into a subcontract agreement pursuant to which

L.0O. agreed to perform aggregate hauling for Mortenson, which

was the contractor for construction of Bobcat Bluff Wind Project

in Archer County, Texas. Doc.’ 80 at 1-45. The agreement provided

in pertinent part as to insurance:

16.1 Prior to starting the Work, [L.0.] shall procure,

maintain and pay for such insurance as will protect

against claims for bodily injury or death, or for

damage to property, including loss of use, which may

arise out of operations by [L.0.] or by any of its

subcontractors or by anyone employed by any of them,

or by anyone for whose acts any of them may be liable.

16.2 [L.0.] shall procure and maintain the following

minimum insurance coverages and limits of liability:

Commercial General Liability

$2,000,000 each occurrence

$2,000,000 aggregate (applicable on a per project

basis)

Automobile liability $2,000,000 each accident

16.4 [L.0.] shall endorse its Commercial General

Liability [and] Automobile Liability . . . policies to

add Mortenson [and others] as “additional insureds”

with respect to liability arising out of {a)

operations performed for Mortenson or Owner by or for

[L.0.], (b) [L.0.’s] completed Work, (c) acts or

omissions of Mortenson or Owner in connection with

their general supervision of operations by or for

[L.0.], (d){L.0.'s] use of Mortenson’s tools and

equipment, and (e) claims for bodily injury or death

brought against any of the additional insured by

[L.0.’s] employees, or the employees of its

subcontractors of any tier, however caused, related to

the performance of operations under the Contract

Documents. Such insurance afforded to Mortenson, Owner

and others as additional insureds under [L.0.’s]

policies shall be primary insurance and not excess

over, or contributing with, any insurance purchased or

“Doc. _” reference is to the number of the item on the docket in this action,

maintained by Mortenson or Owner or others required to

be included as additional insureds.

Id. at 20-21. Further, the subcontract agreement provided

as to indemnity:

17.1 To the fullest extent permitted by law, [L.0.]

shall defend and indemnify Mortenson and all others

whom Mortenson is obligated to defend and indemnify by

the Contract Documents, (collectively, “the

indemnified parties”) from and against any and all

suits or claims alleging damages, losses and expenses,

including attorneys’ fees, attributable to injuries to

persons or damage to property {including loss of use),

arising out of or resulting from [L.0.‘s] Work,

including all suits and claims for which any or all of

the indemnified parties may be or may be claimed to be

liable, and including all suits and claims that arise

during and after construction of the Project. [L.0.]

understands and agrees that this Paragraph obligates

[L.0.] to do defend and indemnify the indemnified

parties from all suits and claims that allege

negligence or other wrongful conduct on the part of

the indemnified parties, and to pay all costs of

defense of the indemnified parties, inciuding

attorneys fees and ancillary costs and expenses

incurred by the indemnified parties. ..

17.2 [L.0.] further agrees to obtain, maintain and pay

for commercial general liability insurance which

conforms to Article 16...

17.3 [L.0.] understands and agrees to undertake these

obligations regardless of whether the injured person

asserting a suit or claim is an employee of [L.0.],

its subcontractors, anyone directly or indirectly

employed by any of them or anyone for whose acts any

of them may be liable. ...

Id. at 21, 24.

TIG is the successor by merger to American Safety Indemnity

Company (“ASIC”), which issued two policies to L.O. as its

insured: Commercial General Liability Policy (Occurrence),

Policy No, ENV024057-11-03, effective from November 7, 2011 to

November 7, 2012 {the “ASIC CGL policy”), Doc. 80 at 124-80, and

Commercial Excess Liability (Limited Umbrella) Insurance

(Occurrence), Policy No, ENU0O24060-11-03, effective from

November 7, 2011 to November 7, 2012 (the “ASIC excess policy”).

Id. at 182-209 (together “the ASIC policies”). In addition,

defendant Arch Insurance Company (“Arch”) issued its Policy No.

HOPKG0042200 to L.O., effective November 7, 2011, to November 7,

2012. Doc. 19 at 2, | 9. The Arch policy included a Commercial

Auto Coverage Part.’ Id.

On April 11, 2014, James M. Shelton (“Shelton”) filed a

first amended petition against Mortenson and others in Cause No.

CV14-04-241 in the 271st Judicial District Court of Wise County,

Texas {the “underlying lawsuit”). In it, Shelton alleged that on

or about April 12, 2012, he was driving an 18 wheeler tractor-

trailer combination with a full load of gravel on Bell Road in

Archer County when two other empty Eractor-trailers headed in

the opposite direction failed to yield the right of way to him,

? Plaintiff's claims against Arch have been dismissed without prejudice, Doc. 82, and that dismissal has been made

final. Doc. 83,

forcing Shelton to run off the road to avoid a head-on

collision. Shelton’s truck rolled into a ditch on the side of

the road and he sustained severe injuries. Doc. 80 at 50-60.

Shelton asserted causes of action for negligence, negligent

hiring, negligent entrustment, negligent supervision, and gross

negligence against Mortenson. He did not name L.O. as a

defendant. Id. In his third amended petition filed April 9,

2015, Shelton added an allegation that the manner in which Bell

Road was widened, constructed, maintained, and/or modified by

Mortenson for the Bobcat Bluff Wind Project was also a proximate

cause of his truck rolling. Id. at 66.

In May 2014, Mortenson placed its commercial general

liability carrier, plaintiff, on notice of the underlying

lawsuit. Doc, 80 at 95. Plaintiff undertook the defense of

Mortenson in the underlying lawsuit. Id. at 1-45. By letter

dated June 3, 2016, plaintiff made demand on L.O. to reimburse

it for defense costs of the underlying lawsuit. Doc. 90 at 37.

L.O. apparently forwarded Mortenson’s demand to Arch, which, by

letter dated September 23, 2016, denied coverage under its

policy. Id. at 94-103.

On February 13, 2017, Mortenson filed suit against L.O.

under Cause No. CV17-02-130 in the District Court of Wise

County, Texas, 271st Judicial District, for breach of contract

arising out of the failure of L.O. to defend Mortenson in the

underlying lawsuit. Doc. 90 at 197-253. On November 1, 2018,

L.O. filed a voluntary petition under Chapter 7 of the United

States Bankruptcy Code, which was assigned Case No. 18-52579-cag

in the United States Bankruptcy Court for the Western District

of Texas, San Antonio Division. Mortenson did not make an

appearance in the bankruptcy case.

The underlying lawsuit was tried in July 2019 and the jury

returned a verdict against Mortenson. Doc. 80 at 101. The final

judgment was signed August 27, 2019.’ Id. at 102. Mortenson

appealed and the appeal is currently pending under Case No. 02-

19-00435-CV in the Court of Appeals for the Second District,

Fort Worth, Texas. .

On August 13 or 15, 2019, L.O. tendered the defense of

Cause No. CV17-02-130, the contractual indemnification claim, to

TIG’s predecessor, ASIC. Doc. 80 at 122; Doc. 90 at 259. By

letter dated November 19, 2019, ASIC denied the claim. Doc. 90

at 258-71.

On February 5, 2020, plaintiff filed its complaint in this

action. Doc. 1. Plaintiff seeks defense and indemnity of

Mortenson in the underlying lawsuit as an additional insured

The judgment included $510,153.51 for past damages; $510,153.51 prejudgment interest; and $5,264,619.£0 for

future damages. Doc, 80 at 102.

under the ASIC policies. It also seeks to recover as contractual

indemnitee under the subcontractor agreement between Mortenson

and L.O., saying that it is subrogated to that right. This

lawsuit was the first notice TIG received that Mortenson sought

defense and indemnification in the underlying lawsuit as an

additional insured under the ASIC policies. Doc. 80 at 122,

If.

Grounds of the Motion

TIG asserts three grounds in support of its motion. Doc.

79, First, TIG has no duty to defend or indemnify Mortenson as

an additional insured under the ASIC policies due to Mortenson’s

and plaintiff's material breach of the policies’ notice

provisions. Second, coverage is excluded by the ASIC CGL

policy’s auto exclusion. And, third, Mortenson is not an insured

under the ASIC excess policy.

TIL.

Analysis

A. Failure to Give Notice

In its first ground, TIG urges that it has no duty to

defend or indemnify Mortenson as an additional insured under the

ASIC policies because plaintiff and Mortenson materially

breached the policies’ notice provisions by failing to give

notice of demand for defense and indemnity until five months

after the final judgment was entered in the underlying lawsuit.

The ASIC CGL policy provides that notice of an occurrence, claim

or suit must be given to the insurer “as soon as practicable”

and that the insured must “immediately” send copies of any

demands, notices, summonses or legal papers received. Doc. 80 at

138. The ASIC excess policy requires that the insurer be

notified “promptly” of an occurrence or offense (which may

result in a claim), claim or suit. Id. at 192-93.

When a commercial general liability insurance policy

requires notice of a claim or suit “as soon as practicable,” the

failure to give such notice defeats coverage if the insurer was

prejudiced by the delay. PAJ, Inc. v. Hanover Ins. Co., 243

S.W.3d 630, 636-37 {Tex. 2008). Texas courts have recognized

that prejudice occurs as a matter of law when: (1) the insurer,

without notice or actual knowledge of a suit, receives notice

after entry of default against the insured; (2} the insurer

receives notice of the suit and the trial date is fast

approaching, thereby depriving it of an opportunity to

investigate or mount an adequate defense; (3) the insurer

receives notice of a lawsuit after the case has proceeded to

trial and judgment has been entered against the insured; or (4)

the insurer receives notice of a default judgment against its

insured after the judgment becomes final and nonappealable. St.

§

Paul Guardian Ins. Co. v. Centrum G.S. Ltd., 383 F. Supp. 2d

891, 903 (N.D. Tex. 2003} (citing numerous Texas cases). The

insurer has no duty to notify the insured of coverage and no

duty to defend until the insured notifies the insurer that it

has been served with process and expects the insurer to defend.

Nat‘l Union Fire Ins. Co. of Pittsburgh, PA v. Crocker, 246

S.W.3d 603, 609 (Tex, 2008); Harwell v. State Farm Mut. Auto.

Ins. Co., 896 S.W.2d 170, 173-74 (Tex. 1995). Once the case is

over—that is, the jury has returned its verdict—notice is

clearly too late. Berkley Reg’l Ins. Co. v. Philadephia Indem.

Ins. Co., 690 F.3d 342, 350-51 (5th Cir, 2012). See also Berkley

Reg’l Ins. Co. v. Philadelphia Indem. Ins. Co., 600 F. App’x

230, 237 (Sth Cir. 2015); Jamestown Ins. Co., RRG v. Reeder, 508

F. App’x 306, 309 (Sth Cir. 2013). The cows have long since left

the barn. Berkley, 690 F.3d at 351 (noting that the argument

that the insurer could still participate in the appeal rang

hollow) .*

In this case, the summary judgment evidence establishes

that the underlying lawsuit was filed against Mortenson on April

11, 2014. Mortenson gave notice to plaintiff in May 2014 and

4 To the extent Mortenson appears to argue that TIG has a duty at this point to pursue the appeal of the underlying

action on its behalf, the case it cites does not stand for that proposition. Doc, 89 at 12 (citing Associated Auto, Inc.

v. Acceptance Indem, Ins. Co., 705 F. Supp. 2d 714, 723-24 (S.D. Tex. 2010)), And, if it did, it would be

inconsistent with the Fifth Circuit’s holding in Berkley Reg’! Ins. Co. v. Philadelphia Indem. Ins. Co., 590 F.3d 342

(Sth Cir, 2012).

plaintiff undertook Mortenson'’s defense. The jury returned its

verdict on July 19, 2019. Final judgment was signed August 27,

2019. TIG was not placed on notice of any claim for the defense

and indemnification of Mortenson as an additional insured in the

underlying lawsuit until February 7, 2020, when it received

plaintiff's complaint in this action. That notice was clearly

untimely and prejudicial to TIG as a matter of law.°

That L.0,. tendered the underlying lawsuit to TIG for

defense and indemnity on August 15, 2019, did not impose any

duty on TIG to defend or indemnify Mortenson. Crocker, 246

S.W.3d at 609. TIG was not obligated to act unless and until

Mortenson made demand on it. Id. And, contrary to Mortenson’s

argument, there is no probative summary judgment evidence to

support the allegation that TIG knew at any time before the

filing of this lawsuit that Mortenson was demanding defense and

indemnity of the underlying lawsuit as an insured under the ASIC

policies.*®

5 The contention that TIG would not have been harmed because it would have denied coverage had Mortenson made

a demand for defense and indemnity is not supported by the record. This is not a case like Sentry Select Ins, Co. v.

Lopez, No. EP+14-CV-284-KC, 2016 WL 4257751, at *9 (W.D. Tex. Mar. 18, 2016), where there was undisputed

evidence that the insurer knew about the lawsuit, conducted its own independent investigation, and determined that

it would have denied a defense even had demand been made.

6 The documents to which Mortenson refers are unauthenticated and confusing. For example, Mortenson alleges that

Exhibit I is a communication with TIG’s agent, but there is nothing to show who the agent is or by what authority it

is acting. In any event, the document attaches a copy of the petition in No. CV17-02-130, the suit by Mortenson

seeking contractual indemnity from L.O. That document does not constitute notice to TIG that Mortenson seeks

defense and indemnity in the underlying lawsuit as an additional insured under the ASIC policies, Nor do the others

to which it refers. Doc. 89 at 7 (citing Exs. K, L, & M).

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Mortenson finally argues that it is excused from giving

timely notice to TIG because it did not know about the ASIC

policies. Doc. 89 at 13. The case upon which it relies does not

support its position. In Century Sur. & Ins. Corp. v. Anderson,

446 S.W.2d 897 (Tex. App.—Fort Worth 1969, no writ), a

grandchild was badly burned by acts of negligence of the

grandmother. Suit was brought on behalf of the grandchild. The

grandparents were incorrectly told by the bank that was trustee

for a trust that covered the premises where they resided that

there was no insurance. They hired an attorney to see about the

possibility of removing the bank as trustee given its failure to

obtain insurance and he immediately determined that the policy

existed and made demand for defense and indemnity on the

insurance company. At the time of the demand, the suit by the

grandchild had never been tried and was still pending. The court

reviewed a number of cases and determined that under the facts

and circumstances of that case, notice had been given as soon as

practicable.

Here, Mortenson has not shown that it acted with diligence

in seeking to determine whether L.O. had obtained the insurance

required pursuant to the subcontract agreement between them.

L.O. was required to provide certificates of insurance to

Mortenson prior to beginning work. Doc. 80 at 21, § 16.6.

Hi

Mortenson apparently chose to ignore the matter until after the

verdict in the underlying lawsuit. Information regarding L.O.‘s

insurance policies should have been obtained long before the

verdict and long before L.0. filed bankruptcy. Mortenson has not

cited any authority to support the proposition that repeatedly

tendering the underlying lawsuit to L.O. constitutes diligence.’

B. The CGL Policy’s Auto Exclusion

In its second ground, TIG argues that even if the court

were to determine that it was not prejudiced by the lack of

notice of the claim, the ASIC CGL policy’s auto exclusion would

preclude coverage for Mortenson. The ASIC CGL policy had limits

of liability of $1,000,000 per occurrence and $2,000,000 in the

general aggregate with a $2,500 deductible per occurrence. Doc.

80 at 124. It contained an exclusion for bodily injury “arising

out of the ownership, maintenance, use or entrustment to others

of any [auto] owned or operated by or rented or loaned to any

insured. Use includes operation and ‘loading or unloading.’” Id.

at 132.

In this case, it is clear that Shelton’s injuries arose out

of the use of an “auto” under the ASIC CGL policy since it was a

tractor-trailer designed for travel on public roads. Doc. 80 at

? There is no support for Mortenson’s representation that it tendered the underlying lawsuit to L.O. “with the

understanding that they would provide information about the policies.” Doc. 89 at 14. In any event, demand on L.O.

is not demand on TIG.

[2

65, 140. And, Mortenson has admitted that Shelton was employed

by L.O. as a truck driver and was acting in that capacity when

the facts giving rise to the underlying lawsuit occurred. Doc.

89 at 5; Doc. 90 at 199. That the bodily injury arose out of the

operation of the vehicle by L.O. through Shelton is not an

extrinsic fact but the very basis for the underlying lawsuit and

for potential insurance coverage under the ASIC policies.

Clearly, coverage is excluded.

Mortenson argues that establishing the exclusion would

violate the eight corners rule, pursuant to which an insurer’s

duty to defend is determined by an analysis of the pleadings and

the policy. Dec. 89 at 15 {citing GuideOne Elite Ins. Co. v.

Fielder Road Baptist Church, 197 S.W.3d 305 (Tex. 2006)}. As

Mortenson admits, however, the pleadings in the underlying

lawsuit do not include any factual allegation that Shelton was

employed by an insured. In fact, L.0. is not named in the

underlying lawsuit. Id. at 16. But, unless L.O. was somehow

involved, there could be no insurance coverage. An exception to

the eight corners rule applies because extrinsic evidence is

relevant to the determination of coverage only, not to liability

in the underlying lawsuit. GuideOne, 197 S.W.3d at 309-03 & nn.

1 & 2. That Mortenson recognizes this to be the case is implicit

in its demand to L.O. for defense and indemnity:

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The facts and allegations in this case fall

squarely within the ambit of LO Tranport’s defense and

indemnity obligation. James Shelton was employed by LO

Transport and contends that he was injured in the

course and scope of that employment on April 12, 2012

in connection with work LO Transport was performing

for Mortenson. .. .

Doc. 90 at 37. Shelton was injured when the truck he was driving

for L.O. overturned. The fact that gives rise to potential

insurance coverage is that Shelton was driving for L.O. at the

time of the accident. And, that same fact establishes that the

auto exclusion applies.

Cc. The ASIC Excess Policy

Finally, TIG argues that Mortenson is not a named insured

under the ASIC excess policy. Under pertinent provisions of that

policy, the word “insured” means any person or organization

qualifying as such under Section Ii-Who Is An Insured. Doc. 80

at 187. Section II in turn provides:

1. If you are designated in the Declarations as:

c. An organization other than a partnership or

joint venture, you are an insured. ...

2. Each of the following is also an insured:

a. As respects the “auto hazard”:

{1) Anyone using an *auto” you own, hire or

borrow provided it is with your permission; and

{2) Any of your executive officers,

directors, partners or employees operating an “auto”

you do not own, hire, or borrow while it is being used

in your business.

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No person or organization is an insured with respect

to the conduct of any current or past partnership or

joint venture that is not shown as a Named Insured in

the Declarations or an Additional Named Insured listed

by endorsement to the policy.

Id. at 191.

Mortenson is not designated in the Declarations section of

the ASTC excess policy as an insured. Nor does the ASIC excess

policy contain any endorsement identifying Mortenson as an

additional insured. Doc. 80 at 182-209. Further, Mortenson does

not fall within the definition of “additional insured.” Id. at

195. Neither Mortenson nor plaintiff has raised a genuine issue

of material fact as to this issue and TIG is entitled to

judgment as a matter of Law.

Indemnity

Mortenson argues that TIG is not entitled to summary

judgment as to all of the claims asserted in this lawsuit

because it fails to address whether Mortenson is entitled to

contractual indemnity from L.O., which it alleges would be

covered by the ASIC policies. But neither plaintiff nor

Mortenson has standing to bring an action against TIG on that

basis, because L.O.’s liability to Mortenson has not been

determined. Ohio Cas. Ins. Co. v. Time Warner Ent. Co., L.P.,

244 S.W.3d 885, 888 (Tex. App.—Dallas 2008, pet. denied) (Texas

is not a direct action state).

15

Mortenson also argues that determination of TIG’s duty to

indemnify Mortenson is premature because the underlying lawsuit

is on appeal. Doc. 89 at 9-10. In this case, however, TIG has

established that there is no insurance coverage under the ASIC

policies. If there is no coverage, there can be no duty to

defend or indemnify. See Farmers Tex. Cnty. Mut. Ins. Co. v.

Griffin, 955 S.W.2d 81, 84 {Tex. 1997).

iV.

order

The court ORDERS that TIG’s motion for summary judgment be,

and is hereby, granted; that plaintiff and Mortenson take

nothing on their claims against TIG; and that such claims be,

and are hereby, dismissed with prejudice”

SIGNED May 14, 2021. pp fd vf

JF™ McBRYUE fL

fPnited States Distryét Judge

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