Burlington Insurance Company v. Ranger Specialized

Case: 16-20195 Document: 00514270240 Page: 1 Date Filed: 12/12/2017

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

United States Court of Appeals

Fifth Circuit

No. 16-20195 FILED

December 12, 2017

Lyle W. Cayce

Clerk

LYDA SWINERTON BUILDERS, INCORPORATED,

Plaintiff-Appellee/Cross-Appellant

v.

OKLAHOMA SURETY COMPANY,

Defendant-Appellant/Cross-Appellee

Appeals from the United States District Court

for the Southern District of Texas

Before DAVIS, GRAVES, and COSTA, Circuit Judges.

JAMES E. GRAVES, JR., Circuit Judge:

This case involves several issues of Texas law relating to an insurer’s

duty to defend and the damages that an insured may recover when an insurer

breaches that duty. The district court, after disposing of much of the case

through a series of partial summary judgment rulings and conducting a bench

trial on one remaining claim, issued a final judgment that largely (though not

entirely) favored the insured. The insurer and the insured now cross-appeal

from that judgment. We AFFIRM in part and REVERSE in part.

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No. 16-20195

I. BACKGROUND

A. The Project and the Subcontract

Lyda Swinerton Builders, Inc. (“LSB”) is a Texas-based general

contractor. In November 2003, LSB was hired to build a ten-story office

building in College Station, Texas. LSB, in turn, hired numerous

subcontractors, among them A.D. Willis Company, Inc. (“Willis”). The

subcontract agreement between LSB and Willis, which dates to April 2005,

defined the scope of Willis’ work as “ROOFING, ORNAMENTAL METAL,

METAL WALL PANELS, and ROUGH CARPENTRY.” The subcontract

required Willis to maintain a general liability insurance policy designating

LSB as an additional insured with respect to liabilities arising out of Willis’

work under the subcontract. The subcontract also contained an

indemnification provision, which read:

TO THE FULLEST EXTENT PERMITTED BY LAW,

SUBCONTRACTOR AGREES TO DEFEND, HOLD HARMLESS

AND UNCONDITIONALLY INDEMNIFY CONTRACTOR AND

OWNER . . . AND ALL PARTIES WHOM CONTRACTOR IS

REQUIRED TO INDEMNIFY PURSUANT TO THE TERMS OF

THE CONTRACT DOCUMENTS, AGAINST AND FOR ALL

LIABILITY, COSTS, EXPENSES, CLAIMS, LIENS, CITATIONS,

PENALTIES, FINES, ATTORNEYS’ FEES, LOSSES, AND

DAMAGES WHICH CONTRACTOR MAY AT ANY TIME

SUFFER OR SUSTAIN OR BECOME LIABLE FOR BY REASON

OF ANY ACCIDENTS, DAMAGES, OR INJURIES EITHER TO

THE PERSONS OR PROPERTY OR BOTH OF CONTRACTOR,

OWNER OR SUBCONTRACTOR, OR OF THE WORKERS OF

SUCH PARTIES, OR OF ANY OTHER PARTIES, OR TO THE

PROPERTY OF ANY PARTY, IN ANY MANNER ARISING OUT

OF OR RESULTING FROM SUBCONTRACTOR’S

PERFORMANCE OR FAILURE TO PERFORM HEREUNDER,

OR FAILURE OR DEFECTS IN MATERIALS OR GOODS

SUPPLIED BY OR ON BEHALF OF SUBCONTRACTOR,

INCLUDING, BUT NOT LIMITED TO, ANY NEGLIGENT ACT

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OR OMISSION OR CLAIM INVOLVING STRICT LIABILITY OR

NEGLIGENCE PER SE OF CONTRACTOR OR OWNER, THEIR

OFFICERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES,

AGENTS, CONTRACTOR’S SURETY AND ALL PARTIES

WHOM CONTRACTOR IS REQUIRED TO INDEMNIFY

PURSUANT TO THE TERMS OF THE CONTRACT

DOCUMENTS.

THE COVERAGE OF ANY INSURANCE POLICY REQUIRED

HEREIN OR ACTUALLY CARRIED BY SUBCONTRACTOR

SHALL NOT LIMIT THE EXTENT OF SUBCONTRACTOR’S

LIABILITY UNDER THE FOREGOING INDEMNITY.

Before returning the signed subcontract to LSB, Willis’ president made several

handwritten changes to the document, including striking out the portion of the

indemnification provision indicated above. LSB did not countersign the

subcontract, and there is no evidence in the record that LSB noticed or objected

to Willis’ alterations.

B. The OSC Policy

Willis subsequently obtained a commercial general liability insurance

policy from Oklahoma Surety Company (“OSC”) with a policy period of

February 1, 2006 to February 1, 2007. The OSC Policy identified Willis as the

“Named Insured” and as a “COMMERCIAL ROOFING CONTRACTOR.” The

policy provided that:

[OSC] will pay those sums that the insured becomes legally

obligated to pay as damages because of “bodily injury” or “property

damage” to which this insurance applies. [OSC] will have the right

and duty to defend the insured against any “suit” seeking those

damages. However, [OSC] will have no duty to defend the insured

against any “suit” seeking damages for “bodily injury” or “property

damage” to which this insurance does not apply. [OSC] may, at

[its] discretion, investigate any “occurrence” and settle any claim

or “suit” that may result.

The policy contained an endorsement naming “Lyda Builders & its

parent & affiliated companies” as additional insureds, “but only with respect

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to liability directly attributable to [Willis’] performance of ‘[Willis’] work’ for

[LSB and LSB’s parent and affiliates].” Elsewhere, the policy defined Willis’

“work” as “[w]ork or operations performed by [Willis] or on [its] behalf” and

“[m]aterials, parts or equipment furnished in connection with such work or

operations.” The endorsement also stated that it applied “only when [Willis]

ha[s] agreed by written ‘insured contract’ to designate [LSB and its parents

and affiliates] as an additional insured subject to all provisions and limitations

of this policy.” The term “insured contract” was defined to include “[t]hat part

of any other contract or agreement pertaining to [Willis’] business . . . under

which [Willis] assume[s] the tort liability of another party to pay for ‘bodily

injury’ or ‘property damage’ to a third person or organization. Tort liability

means a liability that would be imposed by law in the absence of any contract

or agreement.” The term “property damage” was defined as:

a. Physical injury to tangible property, including all resulting loss

of use of that property. All such loss of use shall be deemed to

occur at the time of the physical injury that caused it; or

b. Loss of use of tangible property that is not physically injured.

All such loss of use shall be deemed to occur at the time of the

‘occurrence’ that caused it.

C. The Underlying State-Court Lawsuit

In January 2005, the owner of the College Station project assigned its

interest in the contract with LSB to Adam Development Properties, L.P.

(“ADP”). On February 12, 2008, ADP filed an original petition in Texas state

court against LSB and LSB’s parent company. That petition sought damages

against LSB for breach of contract and alleged, in pertinent part, that:

 LSB entered into the contract for the project on or about November 17,

2003; the date of commencement of the project was December 1, 2003;

and the projected deadline for substantial completion was January 28,

2005.

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 “It has now been well over four years since commencement of the project,

and approximately three years since the contractual deadline for

substantial completion expired, and the project is still far from being

substantially complete. Throughout the course of the project, LSB’s

performance of the Work under the contract documents has been marked

by numerous material deficiencies. Without limitation, the portions of

the Work affected by such deficiencies include the exterior granite

façade, the curtain wall systems, the punch window systems, the precast

panel connections, the roof, the dormers, the rotunda, the joint sealant,

the drywall, the fire protection systems, the HVAC systems, and the

electrical systems.”

 “In addition, LSB has consistently failed to comply with its contractual

obligations to adequately supervise work performed by subcontractors;

to supply sufficient skilled workers and suitable materials necessary to

complete the Work in accordance with the contract documents; to take

adequate protective measures to prevent damage to the Work resulting

from exposure to the elements; to timely provide monthly project reports

and project schedules; to promptly pay monies owed to subcontractors;

and to resolve, remove or discharge liens filed against the project by

subcontractors.”

 “In the months prior to February 1, 2008, many of LSB’s subcontractors

had already removed their crews, heavy equipment, machinery, and

tools from the project jobsite. Since that date, LSB and the few remaining

subcontractors still at the jobsite removed most of their heavy

equipment, machinery, and tools . . . .”

 For these and other reasons, “on February 13, 2008, pursuant to the

terms of the contract documents, ADP terminated the contract.”

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In April 2011, LSB filed third-party petitions against various companies,

including Willis. On November 17, 2011, ADP filed its first amended petition,

the factual allegations of which were essentially the same as those in the

original petition. In addition to the breach of contract claim, the first amended

petition added claims against LSB for negligence and misrepresentation. The

negligence claim asserted that LSB breached its duty to “exercise ordinary care

in connection with the project, including but not limited to the duty to exercise

ordinary care in the supervision of its subcontractors,” thereby “caus[ing]

property damage separate and apart from its scope of work under the contract

documents.” The first amended petition referred to Willis as a third-party

defendant, but did not expressly identify it as a subcontractor.

On October 31, 2012, ADP filed a second amended petition. That petition

was very similar to the previous petitions. This time, however, ADP identified

Willis (and others) as “Third-Party Defendants” and incorporated specific

references to them throughout the pleading. In particular, the second amended

petition alleged:

 “Throughout the course of the project, [LSB]’s performance of the work

under the contract documents (and the work of the Third-Party . . .

Defendants, for which [LSB] is responsible) was marked by numerous

material deficiencies. These deficiencies were a product of [LSB]’s (and

the Third-Party . . . Defendants’, for which [LSB] is responsible)

negligence. This negligence caused loss of use of the building and

property damage separate and apart from [LSB]’s scope of work under

the contract documents. Without limitation, the portions of the work

damaged and affected by such deficiencies include the exterior granite

façade, the curtain wall systems, the punch window systems, the precast

panel connections, the roof, the dormers, the rotunda, the joint sealant,

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the drywall, the fire protection systems, the HVAC systems, and the

electrical systems.”

 With respect to the negligence claim against LSB, the second amended

petition again alleged that LSB breached its “duty to exercise ordinary

care in the supervision of its subcontractors” and added that LSB’s

“negligence (and the negligence of the Third-Party . . . Defendants, for

which [LSB] is responsible) proximately caused property damage

separate and apart from [LSB]’s scope of work under the contract

documents.”

D. LSB’s Requests for Defense

In a letter dated August 18, 2011, LSB requested that OSC provide it

with “defense and indemnification as an additional insured” under the OSC

Policy in connection with ADP’s original petition. OSC denied that request in

October 2011. LSB requested that OSC provide it with a defense against the

first amended petition on July 6, 2012 and against the second amended petition

on November 21, 2012. OSC denied both of those requests as well. LSB also

requested defense and indemnification from various other insurance

companies, some of which had issued policies directly to LSB and others of

which had issued policies to LSB’s subcontractors. Like OSC, many of these

insurers denied LSB’s requests.

E. The Federal Suit

In June 2012, one of the insurers that had denied LSB’s request for

defense filed a declaratory judgment action in federal district court, naming

ADP, LSB, and another party as defendants. LSB thereafter filed a third-party

complaint in the same action against OSC and seven other insurers. In its

second amended third-party complaint, LSB sought damages and declaratory

relief against OSC and the other insurers for: breach of contract based on their

failure to defend LSB in the state court lawsuit; violations of Chapter 541 of

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the Texas Insurance Code; and violations of Texas’ Prompt Payment of Claims

Act (“PPCA”).

The state and federal lawsuits proceeded simultaneously for a time, but

by some point in 2013, all the claims had been settled, save for those between

LSB and OSC. In June 2014, the district court granted partial summary

judgment in LSB’s favor, finding that OSC owed a duty to defend LSB against

ADP’s second amended petition. In June 2015, the district court decided

several additional motions for partial summary judgment, ruling that: OSC

owed a duty to defend LSB under ADP’s original petition; OSC breached its

duty to defend LSB and was therefore liable to LSB for damages, including

defense fees and costs; and OSC violated the PPCA by breaching its duty to

defend, thereby entitling LSB to recover damages for that violation as well.

The court denied OSC’s motion for partial summary judgment, which asserted,

among other things, that OSC did not have a duty to defend LSB due to an

insurance law concept known as the “anti-stacking rule.” After conducting a

bench trial on LSB’s claim for violations of Chapter 541 of the Texas Insurance

Code, the district court ruled that LSB had not met its burden of proving that

it had “suffered injury separate and apart from the denial of benefits it was

owed under the OSC Policy.” Concluding that this circuit’s precedent precluded

LSB from recovering extra-contractual damages in the absence of such

“independent injury,” the district court rendered judgment in favor of OSC on

that claim.

On September 25, 2015, the district court entered a final judgment and

ordered OSC to pay LSB:

 $655,600.27 for breaching the duty to defend and violating the PPCA;

 a statutory penalty of 18 percent per annum under the PPCA, with

$296,209.69 having accrued through August 20, 2015, and $323.32

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accruing each day thereafter “until the date of payment of this

judgment”; and

 reasonable attorney’s fees and costs.

On February 23, 2016, the district court entered an amended final

judgment that included an award of pre-judgment interest to LSB. OSC then

filed a motion to alter, amend, or correct the amended final judgment, which

the district court denied.

This appeal followed.

II. DISCUSSION

OSC appeals several of the district court’s summary judgment rulings

and two of its damages rulings. LSB cross-appeals from the district court’s

ruling denying its claim under Chapter 541 of the Texas Insurance Code.

A. OSC’s Appeal of the Summary Judgment Rulings

OSC challenges the district court’s grant of summary judgment in favor

of LSB on OSC’s duty to defend, OSC’s breach of that duty, and OSC’s liability

under the PPCA. OSC also appeals the denial of its partial motion for summary

judgment based on the anti-stacking rule. We review grants and denials of

summary judgment de novo. United States v. Corpus, 491 F.3d 205, 209 (5th

Cir. 2007). Summary judgment is appropriate when “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). In this diversity case, Texas substantive

law and federal procedural law apply. See Gasperini v. Ctr. for Humanities,

Inc., 518 U.S. 415, 427 (1996).

1. OSC’s Duty to Defend

Under Texas law, the duty to defend obligates an insurer to “defend the

insured in any lawsuit that ‘alleges and seeks damages for an event potentially

covered by the policy.’” Colony Ins. Co. v. Peachtree Constr., Ltd., 647 F.3d 248,

253 (5th Cir. 2011) (quoting D.R. Horton–Texas, Ltd. v. Markel Int’l Ins.

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Co., 300 S.W.3d 740, 743 (Tex. 2009)). “The duty to defend depends on the

language of the policy setting out the contractual agreement between insurer

and insured.” Pine Oak Builders, Inc. v. Great Am. Lloyds Ins. Co., 279 S.W.3d

650, 655 & n.28 (Tex. 2009) (“A defense of third-party claims provided by the

insurer is a valuable benefit granted to the insured by the policy,” which

protects the insured “‘against the expense of any suit seeking damages’ covered

by the policy.” (quoting Heyden Newport Chem. Corp. v. S. Gen. Ins. Co., 387

S.W.2d 22, 25 (Tex. 1965))). Whether an insurer has a duty to defend its

insured is a question of law. Ooida Risk Retention Grp., Inc. v. Williams, 579

F.3d 469, 472 (5th Cir. 2009).

a. LSB’s Status as an “Additional Insured”

To decide whether OSC had a duty to defend LSB against ADP’s lawsuit,

we must first determine whether LSB qualified as an “additional insured”

under the OSC Policy. See ACE Am. Ins. Co. v. Freeport Welding & Fabricating,

Inc., 699 F.3d 832, 840–41 (5th Cir. 2012) (considering first the question of

“additional insured” status and then determining whether the allegations in

the underlying suit triggered the insurer’s duty to defend the additional

insured); Gilbane Bldg. Co. v. Admiral Ins. Co., 664 F.3d 589, 594 (5th Cir.

2011) (same). Settled rules of contract interpretation apply to this

determination. See ACE Am. Ins., 699 F.3d at 842. Under Texas law, contract

terms are given their plain, ordinary meaning, considered in light of the

contract as a whole, unless the contract itself shows that the parties intended

the terms to have a different, technical meaning. Am. Mfrs. Mut. Ins. Co. v.

Schaefer, 124 S.W.3d 154, 158–59 (Tex. 2003). Ambiguous insurance policy

language must be read “strictly against the insurer and liberally in favor of the

insured.” Lawyers Title Ins. Corp. v. Doubletree Partners, L.P., 739 F.3d 848,

859 (5th Cir. 2014) (internal quotation marks omitted) (quoting Barnett v.

Aetna Life Ins. Co., 723 S.W.2d 663, 666 (Tex. 1987)).

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As mentioned above, the OSC Policy obligates OSC to defend Willis and

any “additional insured” against any suit seeking damages for “property

damage” covered by the policy. According to the endorsement, LSB is an

“additional insured,” provided that Willis has “agreed by written ‘insured

contract’ to designate” LSB as such. The district court concluded that the

subcontract between LSB and Willis satisfied this requirement. We agree.

OSC maintains that the subcontract cannot be a “written ‘insured

contract’” because LSB did not countersign it. However, the OSC Policy does

not expressly state that the contract must be signed by all the parties to it, and

we do not view the word “written” as imposing that requirement. See Millis

Dev. & Constr., Inc. v. Am. First Lloyd’s Ins. Co., 809 F. Supp. 2d 616, 627 (S.D.

Tex. 2011) (holding that an additional insured provision “only require[d] that

both parties agree in a written contract that one of the parties is to be an

additional insured,” not that “both parties be signers of the written contract in

order for one of the parties to be considered an additional insured”); Nat’l

Union Fire Ins. Co. v. Crocker, 246 S.W.3d 603, 606 (Tex. 2008) (courts must

give the words in an insurance policy “their plain meaning, without inserting

additional provisions into the contract”). To be enforceable, a contract requires

mutual assent, and “[e]vidence of mutual assent in written contracts generally

consists of signatures of the parties and delivery with the intent to bind.”

Baylor Univ. v. Sonnichsen, 221 S.W.3d 632, 635 (Tex. 2007). But as this court

has held, a party may qualify as an additional insured even if the “insured

contract” is not enforceable. Gilbane Bldg. Co. v. Admiral Ins. Co., 664 F.3d

589, 596 (5th Cir. 2011). “Additional insured” status depends, not on the

enforceability of the “insured contract,” but instead on whether the named

insured “agreed to ‘assume the tort liability of another party.’” Id. (emphasis in

original) (citing Mid-Continent Cas. Co. v. Swift Energy Co., 206 F.3d 487, 492–

93 (5th Cir. 2000)). OSC contends the subcontract is deficient in this regard

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due to Willis’ handwritten modification of the indemnification language. Even

if the stricken language is omitted, however, the provision still states that

Willis agrees to “unconditionally indemnify” LSB “to the fullest extent

permitted by law” for “all liability” that LSB incurs for damages “in any

manner arising out of or resulting from [Willis’] performance or failure to

perform” under the subcontract. Thus, with the exception of a subset of claims

involving strict liability and negligence per se, Willis assumed liability for

various tort claims that third parties might bring against LSB. Since the OSC

Policy does not say that Willis must assume all of LSB’s tort liability, we

conclude that the subcontract satisfies the policy’s definition of an “insured

contract.” See Gilbert Tex. Constr., L.P. v. Underwriters at Lloyd’s London, 327

S.W.3d 118, 127 (Tex. 2010) (holding that a party “assumed liability” under a

contract when it undertook obligations beyond those imposed by “general law”);

City of College Station v. Star Ins. Co., 735 F.3d 332, 340 (5th Cir. 2013)

(holding that policy provision excluding liability arising out of “any principle of

eminent domain, condemnation proceeding, [or] inverse condemnation” could

not “reasonably be read to extend to liability arising out of all zoning decisions,”

and noting that ambiguity must be construed in favor of the insured).

b. The Eight-Corners Rule

Since LSB qualifies as an additional insured under the OSC Policy, we

turn to whether the allegations in ADP’s lawsuit were sufficient to trigger

OSC’s duty to defend LSB. Texas law uses the “eight-corners” or “complaint-

allegation” rule to determine whether a liability insurer has a duty to defend

an insured against a third-party lawsuit. Laney Chiropractic & Sports

Therapy, P.A. v. Nationwide Mut. Ins. Co., 866 F.3d 254, 259 (5th Cir. 2017);

Zurich Am. Ins. Co. v. Nokia, Inc., 268 S.W.3d 487, 491 (Tex. 2008). Under that

rule, courts look to the facts alleged within the four corners of the petition (or

complaint) in the underlying lawsuit, “measure them against the language

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within the four corners of the insurance policy, and determine if the facts

alleged present a matter that could potentially be covered by the insurance

policy.” Ewing Constr. Co. v. Amerisure Ins. Co., 420 S.W.3d 30, 33 (Tex. 2014)

(emphasis added).

The eight-corners rule is “very favorable to insureds.” Gore Design

Completions, Ltd. v. Hartford Fire Ins. Co., 538 F.3d 365, 368 (5th Cir. 2008).

The allegations in the petition must be construed liberally in favor of the

insured, and all doubts must be resolved in favor of the duty to defend. Nokia,

268 S.W.3d at 491.

Where the complaint does not state facts sufficient to clearly bring

the case within or without the coverage, the general rule is that

the insurer is obligated to defend if there is, potentially, a case

under the complaint within the coverage of the policy. Stated

differently, in case of doubt as to whether or not the allegations of

a complaint against the insured state a cause of action within the

coverage of a liability policy sufficient to compel the insurer to

defend the action, such doubt will be resolved in the insured’s

favor.

Nat’l Union Fire Ins. Co. v. Merchs. Fast Motor Lines, Inc., 939 S.W.2d 139,

141 (Tex. 1997) (quoting Heyden Newport, 387 S.W.2d at 26); see also Gore

Design, 538 F.3d at 369 (“When in doubt, defend.”). If the petition pleads facts

sufficient to create the potential of covered liability, then the insurer has a duty

to defend the entire case, even if some of the alleged injuries are not covered.

City of College Station, 735 F.3d at 336. While courts may not read facts into

the petition or speculate as to factual scenarios which might trigger coverage

under the policy, they “may draw inferences from the petition that may lead to

a finding of coverage.” Gore Design, 538 F.3d at 369 (internal quotation marks

and citation omitted). The truth or falsity of the allegations is immaterial:

“even if the allegations are groundless, false, or fraudulent the insurer is

obligated to defend.” Nokia, 268 S.W.3d at 491 (internal quotation marks,

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brackets, and citation omitted). Moreover, “[w]hen reviewing the pleadings,

courts must focus on the factual allegations, not the asserted legal theories or

conclusions.” Test Masters Educ. Servs., Inc. v. State Farm Lloyds, 791 F.3d

561, 564 (5th Cir. 2015) (citing Ewing Constr., 420 S.W.3d at 33); accord Nat’l

Union Fire Ins., 939 S.W.2d at 141–42 (“‘[T]he court must focus on the factual

allegations that show the origin of the damages rather than on the legal

theories alleged.’” (internal quotation marks and citation omitted)).

Applying the eight-corners rule, we conclude that OSC had a duty to

defend LSB against ADP’s original petition, as well as the first and second

amended petitions. 1 The original petition alleged that LSB was responsible for

numerous “material deficiencies” affecting various portions of the project,

including “the roof” and structures on or near the roof. In addition, the petition

alleged that LSB failed to “adequately supervise work performed by

subcontractors; to supply sufficient skilled workers and suitable materials

necessary to complete the [w]ork in accordance with the contract documents;

[and] to take adequate protective measures to prevent damage to the [w]ork

resulting from exposure to the elements.” As noted above, the OSC Policy

defines OSC’s duty to defend as encompassing any suit against an insured for

“property damage” to which the policy applies, makes LSB an additional

insured “with respect to liability directly attributable” to Willis’ performance

of its work for LSB, and expressly identifies Willis as a “COMMERCIAL

ROOFING CONTRACTOR.” Reading the original petition liberally, and

1 The district court awarded LSB damages based on defense costs it incurred when

each of the three petitions was the live pleading. Because OSC’s liability depends on whether

it had a duty to defend LSB at the time those costs were incurred, we must apply the eight-

corners rule to all three petitions. See Rhodes v. Chicago Ins. Co., 719 F.2d 116, 119 (5th Cir.

1983) (noting that “[a] complaint which does not initially state a cause of action under the

policy, and so does not create a duty to defend, may be amended so as to give rise to such a

duty” and “a complaint which does allege a cause of action under the policy so as to create a

duty to defend may be amended so as to terminate the duty”).

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resolving any doubts in LSB’s favor, there was at least a potential that ADP’s

suit fell within the policy’s scope of coverage. That was sufficient to trigger

OSC’s duty to defend under the eight-corners rule. And since ADP’s amended

petitions contained more factual detail than the original petition, OSC had a

duty to defend LSB against them as well.

OSC maintains that the original and first amended petitions failed to

sufficiently allege “property damage.” We disagree. The petitions’ factual

allegations, which refer to numerous deficiencies in the work performed on the

project, plainly fit within the policy’s broad definition of “property damage.”

Although OSC suggests that the original petition did not allege “property

damage” because it sought to recover only for breach of contract, under the

eight-corners rule, “[i]t is not the cause of action alleged that determines

coverage but the facts giving rise to the alleged actionable conduct.” Adamo v.

State Farm Lloyds Co., 853 S.W.2d 673, 676 (Tex. App.—Houston [14th Dist.]

1993, writ denied) (emphasis in original).

OSC also argues that the original and first amended petitions did not

allege that Willis specifically caused any of the property damage. It is true that

those petitions did not expressly refer to Willis, but they did indicate that

property damage resulted from the actions of “subcontractors” and specifically

mentioned deficiencies in and around the building’s roof. Reading those

allegations in conjunction with the OSC Policy, which expressly identified

Willis as a “commercial roofing contractor,” it requires no more than a logical

inference to conclude that at least some of the alleged property damage was

potentially attributable to Willis. See Global Sun Pools, Inc. v. Burlington Ins.

Co., No. 05-03-00765-CV, 2004 WL 878283, at *2 (Tex. App.—Dallas Aug. 23,

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2004, no pet.); 2 Liberty Mutual Ins. Co. v. Graham, 473 F.3d 596, 601 (5th Cir.

2006); Allstate Ins. Co. v. Hallman, 159 S.W.3d 640, 644–45 (Tex. 2005).

The allegations in all three petitions were also sufficient to support the

inference that “property damage” potentially occurred during the policy period.

The original petition alleged that the project commenced on December 1, 2003,

that some amount of work was done on the project thereafter, and that the

project was effectively abandoned by February 13, 2008. One could reasonably

conclude from these allegations that ADP potentially sought to recover for

“property damage” that occurred sometime during the policy period of

February 1, 2006 to February 1, 2007. Clearly, none of the allegations negated

that possibility. See GEICO Gen. Ins. Co. v. Austin Power Inc., 357 S.W.3d 821,

825 (Tex. App.—Houston [14th Dist.] 2012, pet. denied) (“Nothing in the

pleadings negates the possibility that the injury occurred between December

31, 1969 and December 31, 1970.”). As ADP’s suit did not involve allegations

of “inherently undiscoverable” damages that were only detected outside of the

policy period, OSC’s reliance on Don’s Building Supply, Inc. v. OneBeacon

Insurance Co., 267 S.W.3d 20, 30 (Tex. 2008), is misplaced.

Because our application of the eight-corners rule relied solely on the

policy and the petitions, we need not consider OSC’s objection to the use of

extrinsic evidence. See generally Ooida Risk, 579 F.3d at 475–76 (recognizing

exception to the general rule that extrinsic evidence cannot be used in

conjunction with the eight-corners rule).

2 Although unpublished, this court cited and relied upon Global Sun Pools in Gore

Design, 538 F.3d at 369–70. In Texas, all opinions and memorandum opinions issued by the

state courts of appeals in civil cases after January 1, 2003 have precedential value. TEX. R.

APP. P. 47.7 cmt.; Mid-Continent Cas. Co. v. Bay Rock Operating Co., 614 F.3d 105, 110 n.3

(5th Cir. 2010).

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c. The Anti-Stacking Rule

In the insurance context, the term “stacking” refers to “taking policy

limits from multiple, but not overlapping, policies potentially covering the

same lawsuit and adding those limits together.” N. Am. Specialty Ins. Co. v.

Royal Surplus Lines Ins. Co., 541 F.3d 552, 556 (5th Cir. 2008). In American

Physicians Insurance Exchange v. Garcia, 876 S.W.2d 842 (Tex. 1994), the

Texas Supreme Court adopted an “anti-stacking rule” that prohibits an

insured from stacking the coverage limits of multiple, consecutive policies

when “a single claim involving indivisible injury” extends across several

distinct policy periods. Id. at 853–55. In those circumstances, “the insured’s

indemnity limit [is] whatever limit applied at the single point in time during

the coverage periods of the triggered policies when the insured’s limit was

highest.” Id. at 853–55.

OSC argues that Garcia’s anti-stacking rule precludes LSB’s claims in

this case. Specifically, OSC asserts that another insurer, CNA, issued general

liability policies to Willis providing coverage from February 1, 2007 through

February 1, 2013. OSC characterizes the property damage underlying ADP’s

lawsuit as an indivisible injury that extended across the periods of coverage

provided by the OSC Policy and the policies issued by CNA. Moreover, OSC

asserts that LSB selected CNA to provide a “complete defense” against the

state court suit. From this, OSC concludes that allowing LSB to recover

defense costs from it would be permitting it to “stack” the OSC Policy and one

or more of the CNA policies.

It is not clear that the Texas Supreme Court would extend Garcia, which

involved an insurer’s duty to indemnify, to the present situation, which

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involves a claim based on an insurer’s duty to defend. 3 See D.R. Horton–Texas,

300 S.W.3d at 743 (“[T]he duty to defend and the duty to indemnify ‘are distinct

and separate duties.’” (quoting Utica Nat’l Ins. Co. v. Am. Indem. Co., 141

S.W.3d 198, 203 (Tex. 2004))). We need not decide that question, however,

because even assuming that the anti-stacking rule has some application in the

duty-to-defend context, there is no basis for applying it in this particular case.

OSC has not pointed to record evidence showing that LSB “selected” CNA for

defense purposes before OSC denied LSB’s first request for defense in October

2011. If LSB sought a defense from CNA only after OSC’s wrongful denial, then

applying the anti-stacking rule would reward OSC for shirking its legal duty.

Applied on a wider scale, such a rule would incentivize wrongful denials of

requests for defense and would shift defense costs onto insurers who undertake

their duty to defend in good faith. Nothing in Garcia supports such an

inequitable result.

d. Conclusion

Because there are no genuine issues of material fact and LSB is entitled

to judgment as a matter of law, we affirm the district court’s grant of summary

judgment in LSB’s favor on the duty to defend and OSC’s breach of that duty.

We also affirm the district court’s denial of OSC’s motion for partial summary

judgment based on the anti-stacking rule.

3 Indeed, the only case OSC cites that applied anti-stacking principles to the duty to

defend involved a policy that subjected the duty to defend to an eroding coverage provision.

N. Am. Specialty Ins. Co. v. Royal Surplus Lines Ins. Co., 541 F.3d 552, 559–60 (5th Cir. 2008)

(explaining impact of policy language that subjects duty to defend to eroding policy limits).

The OSC Policy does not contain such a provision, and in cases like this, Texas courts have

rejected the argument that the anti-stacking rule overcomes “the notion that each of several

insurers on concurrently triggered policies is obligated to provide a full defense to the

insured.” Tex. Prop. & Cas. Ins. Guar. Ass’n/Sw. Aggregates, Inc. v. Sw. Aggregates, Inc., 982

S.W.2d 600, 606–07 (Tex. App.—Austin 1998, no pet.); see also Md. Cas. Co. v. S. Tex. Med.

Clinics, P.A., No. 13-06-89-CV, 2008 WL 98375, at *8 (Tex. App.—Corpus Christi Jan. 10,

2008, pet. denied).

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2. OSC’s Liability under the Prompt Payment of Claims Act

Under the PPCA, an insurer that is “liable for a claim under an

insurance policy” and fails to promptly respond to, or pay, the claim in

accordance with the statute becomes liable to the policy holder or beneficiary

for the amount of the claim, as well as an 18 percent per annum statutory

penalty and reasonable attorney’s fees. TEX. INS. CODE §§ 542.051–.061. To

recover under the PPCA, an insured must establish that: “(1) a claim was made

under an insurance policy, (2) the insurer is liable for the claim, and (3) the

insurer failed to follow one or more sections of the prompt-payment statute

with respect to the claim.” United Nat. Ins. Co. v. AMJ Investments, LLC, 447

S.W.3d 1, 13 (Tex. App.—Houston [14th Dist.] 2014, pet. dism’d) (citing

Allstate Ins. Co. v. Bonner, 51 S.W.3d 289, 291 (Tex. 2001)). Defense costs

incurred by an insured as a result of an insurer’s breach of its duty to defend

are a “claim” within the meaning of the PPCA. Lamar Homes, Inc. v. Mid-

Continent Cas. Co., 242 S.W.3d 1, 20 (Tex. 2007).

The sole basis for OSC’s challenge to the district court’s grant of

summary judgment in favor of LSB under the PPCA is its assertion that LSB

failed to establish that OSC either had a duty to defend LSB or that OSC

breached that duty. Having just rejected those assertions, we affirm. See

Admiral Ins. Co. v. Petron Energy, Inc., 1 F. Supp. 3d 501, 5010 (N.D. Tex.

2014) (“Because Plaintiff had a duty to defend, and breached that duty, the

Court necessarily concludes that Plaintiff violated the Prompt Payment of

Claims Act by erroneously rejecting Defendants’ requests for defense and

delaying payment of fees and expenses incurred in the Oklahoma Litigation.”).

B. LSB’s Cross-Appeal

LSB seeks reversal of the district court’s ruling denying its claim for

extra-contractual damages under Chapter 541 of the Texas Insurance Code.

On appeal from a decision rendered after a bench trial, a district court’s

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findings of fact are reviewed for clear error, while its conclusions of law and

rulings on mixed questions of law and fact are reviewed de novo. Dickerson v.

Lexington Ins. Co., 556 F.3d 290, 294 (5th Cir. 2009).

Chapter 541 prohibits insurers from engaging in various “unfair

methods of competition” and “unfair or deceptive acts or practices.” TEX. INS.

CODE §§ 541.051–.061. A person “who sustains actual damages . . . caused by”

such conduct may recover “the amount of actual damages, plus court costs and

reasonable and necessary attorney’s fees,” with treble damages available if the

insurer is found to have committed the prohibited acts “knowingly.” Id. §§

541.151–.152; Texas Mut. Ins. Co. v. Ruttiger, 381 S.W.3d 430, 441 (Tex. 2012).

Under the Insurance Code, “actual damages” are “‘those damages recoverable

at common law’” that “the insured sustains ‘as a result of’ the statutory

violation.” USAA Texas Lloyds Co. v. Menchaca, ___ S.W.3d ___, 2017 WL

1311752, at *3, 6 (Tex. Apr. 7, 2017) (quoting State Farm Life Ins. Co. v.

Beaston, 907 S.W.2d 430, 435 (Tex. 1995), and Kish v. Van Note, 692 S.W.2d

463, 466 (Tex. 1985)); accord Arthur Andersen & Co. v. Perry Equip. Corp., 945

S.W.2d 812, 816–17 (Tex. 1997) (“actual damages” include both “direct” and

“consequential” damages). Since damages for Insurance Code violations are a

creature of statute, not the insurance policy, they are “extra-contractual” in

nature. See Menchaca, 2017 WL 1311752, at *4 (“An insured’s claim for breach

of an insurance contract is ‘distinct’ and ‘independent’ from claims that the

insurer violated its extra-contractual common-law and statutory duties. . . . A

claim for breach of the policy is a ‘contract cause of action,’ while a common-

law or statutory bad-faith claim ‘is a cause of action that sounds in tort.’”

(citations omitted)).

LSB claimed that OSC violated the Insurance Code by knowingly

misrepresenting the OSC Policy’s coverage so as to avoid defending LSB in the

state-court suit, and that this violation caused LSB to incur defense costs as

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extra-contractual damages. See TEX. INS. CODE §§ 541.060(a)(1), 541.061. After

holding the bench trial, the district court found that LSB had “adduced no

evidence that it suffered injury separate and apart from the denial of benefits

it was owed under the OSC Policy.” Concluding that this circuit’s caselaw

required LSB to establish such an independent injury in order to obtain extra-

contractual damages under the Insurance Code, the district court rendered

judgment for OSC on the claim.

In Vail v. Texas Farm Bureau Mutual Insurance Co., 754 S.W.2d 129

(Tex. 1988), the Texas Supreme Court held that when an insurer improperly

withholds policy benefits, an insured can recover, “at minimum,” the amount

of the wrongly denied benefits as actual damages under the Insurance Code.

Id. at 136. The insured need not show any injury independent from the denied

benefits in order to obtain such extra-contractual damages. Id. Following Vail,

the Texas high court decided two cases in which it rejected efforts by insureds

to recover policy benefits as extra-contractual damages where coverage under

the policies had not been established. Republic Ins. Co. v. Stoker, 903 S.W.2d

338, 341 (Tex. 1995) (“As a general rule there can be no claim for bad faith

when an insurer has promptly denied a claim that is in fact not covered.”);

Provident Am. Ins. Co. v. Castañeda, 988 S.W.2d 189, 196 (Tex. 1998) (rejecting

insured’s claims for extra-contractual damages and expressing no opinion on

the issue of coverage).

In Parkans International LLC v. Zurich Insurance Co., 299 F.3d 514 (5th

Cir. 2002), this circuit, citing Castañeda, stated that “[t]here can be no recovery

for extra-contractual damages for mishandling claims unless the complained

of actions or omissions caused injury independent of those that would have

resulted from a wrongful denial of policy benefits.” Id. at 519. Parkans involved

an insured whose claims were not covered by the insurance policy. Id. at 517–

18. Then, in Great American Insurance Co. v. AFS/IBEX Financial Services,

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Inc., 612 F.3d 800 (5th Cir. 2010), this court, relying on Parkans, expressly

rejected an insured’s argument that it was not required to “prove a separate

injury in order to maintain its extra-contractual claims” because an “insurer’s

denial of insurance proceeds, standing alone, entitled it to recover on its extra-

contractual claims.” Id. at 808 n.1. Unlike Parkans, Castañeda, and Stoker, the

insured in Great American had established coverage under the insurance

policy. Id. at 806. Great American thus established “the opposite rule from that

[set forth] in Vail.” In re Deepwater Horizon, 807 F.3d 689, 698 (5th Cir. 2015).

Meanwhile, several Texas intermediate appellate courts continued to adhere

to Vail. See id.

At the time of the district court’s ruling, the Texas Supreme Court had

not spoken on the independent injury requirement for extra-contractual claims

since Great American. Consequently, the district court, while expressing

reservations about the confused state of the law in this area, followed Great

American as binding precedent.

While this appeal was pending, the Texas Supreme Court issued an

opinion in USAA Texas Lloyds Co. v. Menchaca. 4 In Menchaca, the court

“distill[ed] from [its previous] decisions five distinct but interrelated rules that

govern the relationship between contractual and extra-contractual claims in

the insurance context.” 2017 WL 1311752, at *4. Two of those rules are directly

relevant to this case: the “entitled-to-benefits rule” and the “independent-

injury rule.”

The “entitled-to-benefits” rule provides that “an insured who establishes

a right to receive benefits under an insurance policy can recover those benefits

4The version of this opinion currently available in online databases states at the top:

“NOTICE: THIS OPINION HAS NOT BEEN RELEASED FOR PUBLICATION IN THE

PERMANENT LAW REPORTS. UNTIL RELEASED, IT IS SUBJECT TO REVISION OR

WITHDRAWAL.” The Texas Supreme Court’s online docket indicates that a motion for

rehearing in the case remains pending.

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as ‘actual damages’ under the [Insurance Code] if the insurer’s statutory

violation causes the loss of the benefits.” Id. at *7. Acknowledging that this

rule “is what [was] recognized in Vail,” the court clarified that it “did not reject

the Vail rule in Stoker or in Castañeda.” Id. at *7–8. On the contrary, it

explained:

Stoker and Castañeda stand for the general rule that an insured

cannot recover policy benefits as damages for an insurer’s extra-

contractual violation if the policy does not provide the insured a

right to those benefits. Vail announced a corollary rule: an insured

who establishes a right to benefits under the policy can recover

those benefits as actual damages resulting from a statutory

violation.

Id. at *9.

By reaffirming Vail, Menchaca clearly compels reexamination of

significant aspects of Great American’s reasoning. Yet despite the Texas

Supreme Court expressly stating that our caselaw was wrong to conclude that

Vail had been overruled, OSC argues we should maintain our position based

on the “independent-injury rule.” See id. at *11–12. Menchaca summarized

that rule as follows:

If an insurer’s statutory violation causes an injury independent of

the insured’s right to recover policy benefits, the insured may

recover damages for that injury even if the insured is not entitled

to receive benefits under the policy. But if the policy does entitle

the insured to benefits, the insurer’s statutory violation does not

permit the insured to recover any actual damages beyond those

policy benefits unless the violation causes an injury that is

independent from the loss of the benefits.

Id. at *12.

As the phrase “beyond those policy benefits” indicates, the independent-

injury rule does not restrict the damages an insured can recover under Vail or

the entitled-to-benefits rule. Rather, the independent-injury rule limits the

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recovery of other damages that “flow” or “stem” from a mere denial of policy

benefits. Id. at *12. For example, an insured cannot recover for emotional

distress caused by a mere denial of policy benefits; however, the insured can

recover actual damages for that distress if those damages are caused by the

insurer’s Insurance Code violation and “‘are separate from and . . . differ from

benefits under the [policy].’” Id. at *11 (quoting Twin City Fire Ins. Co. v. Davis,

904 S.W.2d 663, 666 (Tex. 1995), and citing that case as identifying “mental

anguish damages” as an example of damages that could be recovered under the

independent-injury rule). 5

In this case, LSB was entitled to a defense from OSC as a benefit of the

OSC Policy. Consequently, if LSB establishes that OSC’s alleged

misrepresentations caused it to be deprived of that benefit, LSB can recover

the resulting defense costs it incurred as actual damages under Chapter 541—

without limitation from the independent-injury rule. We therefore reverse the

district court’s judgment with respect to LSB’s Chapter 541 claim and remand

for further proceedings in light of this opinion and Menchaca.

C. OSC’s Appeal of the Damages Rulings

OSC challenges two aspects of the district court’s damages

determinations.

5 The post-Menchaca Texas cases OSC relies on applied the independent-injury rule

to bar the recovery of extra-contractual damages where there was no proof of damages

independent of the policy benefits. State Farm Lloyds v. Webb, No. 9-15-408-CV, 2017 WL

1739763, at *9 (Tex. App.—Beaumont May 4, 2017, no pet.) (mem. op.); National Security

Fire & Casualty Co. v. Hurst, 523 S.W.3d 840, 848–49 (Tex. App.—Houston [14th Dist.] May

23, 2017, no pet.).

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1. Defense Costs

OSC argues that LSB is not entitled to the vast majority of the

$655,600.27 it received as damages for OSC’s breach of its duty to defend. 6 The

propriety of awarding these damages is a question of law subject to de novo

review, while the actual calculation of damages is an issue of fact reviewed for

clear error. Ergon-W. Virginia, Inc. v. Dynegy Mktg. & Trade, 706 F.3d 419,

424 (5th Cir. 2013); Munn v. Algee, 924 F.2d 568, 575 (5th Cir. 1991).

Of the $655,600.27 in defense costs awarded to LSB, $500,000 is

attributable to a deductible that LSB paid to another insurer. The record

supports LSB’s claim that this payment was maintained in an escrow account

and was used to pay for defense fees and costs incurred in the state court suit.

“Texas law recognizes that attorneys’ fees and expenses incurred by an insured

in an underlying lawsuit are damages produced by the insurer’s breach of its

duty to defend.” Evanston Ins. Co. v. Legacy of Life, Inc., 645 F.3d 739, 750 (5th

Cir. 2011) (citing U.S. Cas. Co. v. Schlein, 338 F.2d 169, 175 (5th Cir. 1964)).

Accordingly, we uphold this portion of the district court’s award.

The district court also awarded $131,992.67 to LSB for unreimbursed

defense fees it spent on an independent counsel and $22,070.10 for webhosting

costs incurred by the independent counsel. OSC asserts that these

expenditures were unnecessary, in part because LSB had other paid counsel

available. “It is well settled that once an insurer has breached its duty to

defend, the insured is free to proceed as he sees fit; he may engage his own

counsel and either settle or litigate, at his option.” Rhodes v. Chicago Ins. Co.,

a Div. of Interstate Nat. Corp., 719 F.2d 116, 120 (5th Cir. 1983) (citation

6OSC does not challenge the $1,537.50 awarded to LSB for fees paid to a mediator.

OSC also argues that LSB is not entitled to $93,013.77 in damages that the district court did

not award. Since LSB does not seek those damages in its cross-appeal, we do not address that

argument.

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omitted); accord Primrose Operating Co., 382 F.3d at 559 (“A breach of the duty

to defend entitles the insured to the expenses it incurred in defending the suit,

including reasonable attorney’s fees and court costs.”); cf. Graper v. Mid-

Continent Cas. Co., 756 F.3d 388, 393–94 (5th Cir. 2014) (insurer that properly

fulfilled its duty to defend could refuse to pay defense fees incurred by insured’s

independent counsel that the insurer did not approve, when there was no

disqualifying conflict of interest). Since OSC breached its duty to defend, it is

in no position to object to defense-related expenditures that are supported by

the record and that are not patently unreasonable.

Because there is no basis for finding that the district court erred in

awarding these damages, we affirm.

2. The PPCA Statutory Penalty

As mentioned above, an insurer that fails to comply with the PPCA’s

requirements is liable for “the amount of the claim” itself, as well as “interest

on the amount of the claim at the rate of 18 percent a year as damages, together

with reasonable attorney’s fees.” TEX. INS. CODE § 542.060(a). 7 Having

determined that OSC was liable under the PPCA, the district court, in its final

judgment, ordered OSC to pay the 18 percent statutory penalty “until the date

of payment of this judgment.” OSC moved to amend the judgment under

Federal Rule of Civil Procedure 59(e), arguing that the penalty should only

accrue until the date of judgment, rather than the date the judgment is paid.

The district court denied that motion. “We generally review a decision on a

motion to alter or amend judgment for abuse of discretion, although to the

extent that it involves a reconsideration of a question of law, the standard of

7 The provision was amended effective September 1, 2017. This opinion references the

version in effect at the time of the district court’s judgment. The amended version does not

appear to be materially different from the previous version insofar as this appeal is

concerned.

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review is de novo.” In re Deepwater Horizon, 824 F.3d 571, 577 (5th Cir. 2016)

(per curiam) (citing Ross v. Marshall, 426 F.3d 745, 763 (5th Cir. 2005)).

The PPCA itself does not expressly state when the 18 percent penalty

stops accruing, but this court has held that it “only accrues until the date

judgment is rendered in the trial court.” Great Am. Ins. Co. v. AFS/IBEX Fin.

Servs., Inc., 612 F.3d 800, 809 (5th Cir. 2010) (citing Republic Underwriters

Ins. Co. v. Mex-Tex, Inc., 150 S.W.3d 423, 427–28 (Tex. 2004)). Compelling

reasons support the approach taken by the district court; 8 however, under this

court’s rule of orderliness, “one panel may not overrule the decision, right or

wrong, of a prior panel,” absent an intervening change in state law. Soc’y of

Separationists, Inc. v. Herman, 939 F.2d 1207, 1211 (5th Cir. 1991); Batts v.

Tow-Motor Forklift Co., 66 F.3d 743, 747 (5th Cir. 1995). LSB does not identify

any such change in Texas law, nor does it propose “a principled basis to

distinguish” Great American. See Canal Indem. Co. v. Galindo, 344 F. App’x

909, 911 (5th Cir. 2009). 9 Great American’s interpretation of the PPCA is

8 The court in Great American did not examine the PPCA in any detail—it simply

relied on language in Mex-Tex. The court in Mex-Tex, in turn, does not appear to have even

considered the issue of when the penalty’s accrual period ends; its passing statement that

the insured was entitled to the statutory penalty “to the date of judgment” seems to have

been a reference to an uncontested aspect of the trial court’s judgment. See Mex-Tex, 150

S.W.3d at 425, 427. By contrast, a provision of the PPCA mandates that the statute “be

liberally construed to promote the prompt payment of insurance claims.” TEX. INS. CODE

§ 542.054 (emphasis added). Allowing the penalty to accrue until the date the claim (or

judgment) is actually paid, rather than pretermitting it on the date of judgment, accords more

fully with that purpose. See Mark L. Kincaid et al., Annual Survey of Texas Insurance Law,

19 J. CONSUMER & COM. L. 91, 97–98 (2016) (“There is no rational basis nor any basis in the

language of the statute for stopping the penalty on the date of judgment, when the violation

is a failure to pay. The insured remains unpaid on the date of judgment. The insurer has been

penalized during the time it may have been challenging the claim in good faith. Why does it

make sense to stop the penalty once the insurer’s liability is recognized by a judgment? It

doesn’t.”).

9 The district court cited Nautilus Insurance Co. v. International House of Pancakes,

Inc., 4:03-CV-2182, 2009 WL 5061767 (S.D. Tex. Dec. 15, 2009), which assessed the statutory

penalty based on each day that the insured’s “defense costs remain unpaid.” Id. at *5. Like

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binding on this panel, so we reverse the district court’s judgment to the extent

it imposed the 18 percent statutory penalty after the “date of judgment.”

Because the PPCA is a Texas statute, the “date judgment was rendered

in the trial court” must be assessed in light of Texas law. See Acker v. Texas

Water Comm’n, 790 S.W.2d 299, 301 (Tex. 1990) (“A statute is presumed to

have been enacted by the legislature with complete knowledge of the existing

law and with reference to it.”). Texas generally recognizes that “only one final

judgment shall be rendered in any cause except where it is otherwise specially

provided by law.” TEX. R. CIV. P. 301. With respect to LSB’s claims for breach

of the duty to defend and for violation of the PPCA, that date is February 23,

2016, the day the district court entered the amended final judgment. See, e.g.,

City of W. Lake Hills v. State ex rel. City of Austin, 466 S.W.2d 722, 727 (Tex.

1971) (a “corrected final judgment” replaces an earlier judgment).

But when a judgment is partially reversed on appeal, the trial court’s

judgment becomes a nullity as to those claims on which the reversal is based.

See Bramlett v. Phillips, 359 S.W.3d 304, 310 (Tex. App.—Amarillo 2012)

(collecting cases), aff’d, 407 S.W.3d 229 (Tex. 2013). Due to our reversal of the

district court’s judgment with respect to LSB’s Chapter 541 claim, no judgment

has yet been rendered on that claim. Consequently, if, on remand, LSB prevails

on its Chapter 541 claim and elects to recover its defense costs as actual

damages under the Insurance Code, rather than as breach-of-contract

damages, it will be entitled to the 18 percent penalty applied to the amount of

this case, Nautilus involved an insurer’s breach of the duty to defend. Id. at *1. By contrast,

Great American and Mex-Tex involved the duty to indemnify. In the present case, however,

the underlying suit ended prior to the entry of judgment in the coverage action, and the

insured had already incurred all its defense costs prior to judgment. In these circumstances—

that is, where the insured will not incur new defense costs post-judgment—there is no obvious

basis for distinguishing between defense costs and claims for indemnity, insofar as the end

date for accrual of the PPCA’s statutory penalty is concerned.

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those damages through the date of the new judgment. See TEX. INS. CODE

§ 542.061 (providing that the PPCA’s remedies “are in addition to any other

remedy or procedure by law or at common law”); Menchaca, 2017 WL 1311752,

at *8 (“Because the Insurance Code provides that the statutory remedies are

cumulative of other remedies, we concluded [in Vail] that the insureds could

elect to recover the benefits under the statute even though they also could have

asserted a breach-of-contract claim.”). Such recovery would be entirely

consistent with the PPCA’s statutory purpose and would not impermissibly

penalize OSC. See Higginbotham v. State Farm Mut. Auto. Ins. Co., 103 F.3d

456, 461 (5th Cir. 1997) (“State Farm took a risk when it chose to reject

Higginbotham’s claim. State Farm lost when it was found liable for breach of

contract. Therefore, it must pay this 18 percent per annum interest and

reasonable attorneys’ fees.”); Nautilus Ins. Co. v. Int’l House of Pancakes, Inc.,

622 F. Supp. 2d 470, 480–82 (S.D. Tex. 2009) (rejecting due process challenge

to PPCA); cf. Pennington v. Singleton, 606 S.W.2d 682, 690–91 (Tex. 1980)

(treble damage provision of Texas Deceptive Trade Practices Act fell within the

“wide latitude of discretion” given to states under the Due Process Clause).

III. CONCLUSION

For the reasons given above, we AFFIRM the district court’s judgment

in part and REVERSE in part. This case is REMANDED for further

proceedings consistent with this opinion.

29