# Liberty Insurance Corporation v. Arch Insurance Company

> District Court, N.D. Texas · May 14, 2021

URL: https://www.frixlaw.com/law-library/cases/10450390

## Case

- **Court:** District Court, N.D. Texas
- **Decided:** May 14, 2021
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10450390

## How later opinions describe it (automated extraction)

- noting that the argument that the insurer could still participate in the appeal rang hollow

## Opinion text

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, §
§
VS. § NO. 4:20-CV-098-A
§
ARCH INSURANCE COMPANY, ET AL., 8&8
§
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).
10

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:
13

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.

14

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

16

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10450390. Public record. Not legal advice.