Employers Mutual Casualty Co, et al v. Juan Bonilla, et al

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Employers Mutual Casualty Co, et al v. Juan Bonilla, et al

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Case: 09-10476

Document: 00511188664

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Date Filed: 07/29/2010

IN THE UNITED STATES COURT OF APPEALS United States Court of Appeals FOR THE FIFTH CIRCUIT Fifth Circuit FILED
July 29, 2010 N o . 09-10476 Lyle W. Cayce Clerk

E M P L O Y E R S MUTUAL CASUALTY COMPANY; EMCASCO INSURANCE COM PANY, P la in t iffs ­ Appellees v. J U A N MIGUEL BONILLA, also known as Mike; ISABEL MOLINA, I n d iv id u a lly , and as next friend of J.Y.L.M., a minor, Defendants ­ Appellants

A p p e a l from the United States District Court for the Northern District of Texas

B e fo r e DAVIS, WIENER, and SOUTHWICK, Circuit Judges. L E S L I E H. SOUTHWICK, Circuit Judge: T h is is an insurance coverage dispute. It arose after a state court

ju d g m e n t established liability for a serious accident. The district court granted a Motion for Summary Judgment in favor of the insurance companies, finding t h e r e to be no coverage. We hold that the district court erred in denying

c o v e r a g e based on the argument that the injury did not arise from "use" of the v e h ic le . Another exclusion under the relevant policies remains to be considered, h o w e v e r , that was not addressed because of the district court's initial ruling. We R E V E R S E and REMAND for further proceedings.

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Case: 09-10476

Document: 00511188664

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Date Filed: 07/29/2010

No. 09-10476 I . FACTS J u a n Miguel Bonilla leased Truck 219, a mobile catering truck, from Jolly C h e f Express, Inc., in Dallas, Texas. He also leased a space on Jolly Chef's c o m m is s a r y and parking lot. Daily, Bonilla hired a driver and cook for each of h is trucks. At the end of each day the driver and cook would return to the c o m m is s a r y to clean the truck and prepare for the next day's route. O n February 13, 2002, Bonilla hired Fabricio Fernandez to drive and I s a b e l Molina to serve as a cook on Truck 219. Molina and Fernandez completed t h e ir route and returned Truck 219 to Jolly Chef's lot. While Truck 219 was p a r k e d , Fernandez poured a flammable substance, likely gasoline, on the floor o f the truck to loosen the grease. Fernandez then left the truck in order to turn in the money they had earned for the day. As Molina began washing the dishes a n d trays for the day, she heard an explosion and was suddenly in flames. A p ilo t light from the stove had ignited the substance that Fernandez had poured o n the floor. Molina was severely injured. Molina sued Bonilla and Jolly Chef in Texas state court. Bonilla did not h a v e insurance of his own. Truck 219 was listed, though, on Jolly Chef's three in s u r a n c e policies. Jolly Chef's trucks were insured by Employers Mutual

C a s u a lt y Company under a Commercial General Liability ("CGL") Policy and a C o m m e r c ia l Umbrella Policy. Jolly Chef had also purchased a Commercial Auto L ia b ilit y Policy from Emcasco Insurance Company. The Auto Policy covered all o f Jolly Chef's trucks. Emcasco and Employers Mutual are jointly represented. T h e y will be referred to as EMC except where a distinction is needed. EMC defended both Jolly Chef and Bonilla under a reservation of rights. Molina won a judgment against Bonilla in the amount of $1,832,933.58. Molina t o o k nothing against Jolly Chef. EMC filed the present declaratory judgment action in the United States D is t r ic t Court for the Northern District of Texas. Both Bonilla and Molina were 2

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No. 09-10476 n a m e d as defendants, and they are separately represented. EMC denied any lia b ilit y under any policy for the claims asserted in the state court suit. I n due course, each of the parties filed motions for summary judgment. The district court granted EMC's motion, finding no coverage under any of the p o lic ie s. (1) There was no coverage under the CGL policy because neither

B o n illa nor Molina was an "insured." No issues are raised on appeal about the C G L Policy. (2) There was no coverage under the Auto Policy because the fire d id not arise out of the "use" of the vehicle as a vehicle or the maintenance of it. (3) There was no coverage under the Umbrella Policy because the meaning of " u s e " in that policy was the same as under the Auto Policy. Bonilla and Molina appealed. I I . DISCUSSION W e review each of the rulings on cross-motions for summary judgment de n o v o . Ford Motor Co. v. Tex. Dep't of Transp., 264 F.3d 493, 498 (5th Cir. 2001); Fed. R. Civ. Pro. 56(c)(2). We independently examine the evidence and

in fe r e n c e s from the perspective favoring the non-moving party, in order to d e t e r m in e if there are any disputes of material fact. Id. The district court concluded that none of the three policies purchased by J o lly Chef provided coverage for Molina's claims. We start our analysis with a d e s c r ip t io n of each of these policies. A . Overview of the Policies J o lly Chef purchased an Auto Policy, a CGL Policy, and an Umbrella P o lic y . The Umbrella Policy gave coverage "arising out of the ownership,

m a in t e n a n c e , operation, use (including loading or unloading), or entrustment to o t h e r s " of an automobile, if there was coverage provided under a primary policy. "The coverage provided by this policy will not be broader than the coverage p r o v id e d by the `primary' insurance policy." Therefore, the Umbrella Policy s u p p le m e n t e d the liability limits of the Auto Policy. The Umbrella Policy also 3

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No. 09-10476 p r o v id e d coverage in the absence of coverage under a primary policy provided o n e was using the vehicle with the permission of a named insured. The reach o f this additional coverage is contested, a contest we need not resolve. U n d e r the Auto Policy, the insurer "will pay all sums an insured legally m u s t pay as damages because of bodily injury or property damage to which this in s u r a n c e applies, caused by an accident and resulting from the ownership, m a in t e n a n c e or use of a covered auto." The CGL Policy covered "bodily injury" and "property damage" arising fr o m "occurrences" (defined as "accidents") taking place in the "coverage t e r r it o r y ." The CGL Policy synchronized with the Auto Policy by excluding c o v e r a g e for bodily injury and property damage "arising out of the ownership, m a in t e n a n c e , use or entrustment to others of any . . . auto . . . owned or operated b y or rented or loaned to any insured." There may have been additional

e x c lu s io n s under the CGL Policy, but the general manner in which the two p o lic ie s dovetailed is clear. W e look to Texas law to determine the effect that the existence of multiple p o lic ie s might have on our issues. In the principal case cited to us by both p a r tie s , the Texas Supreme Court relied extensively on two treatises. See MidC e n tu r y Ins. Co. of Tex. v. Lindsey, 997 S.W.2d 153, 156 (Tex. 1999). One of the t r e a t is e s embraced by the court, in a section not quoted, explained the interplay o f two insurance policies that use the phrase "arising out of ownership, m a in t e n a n c e , or use" of a motor vehicle: T h e term "arising out of the operation, maintenance, or use" o f a vehicle typically arises in two distinct contexts: first, in the c o n t e x t of an inclusory provision as to coverage in an automobile lia b ilit y policy; and second, in connection with an exclusionary p r o v is io n in general liability or homeowners' insurance policies. In k e e p in g with the general rules of construction, the term may be c o n s t r u e d differently in each context, as the coverage provision is

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No. 09-10476 g e n e r a lly entitled to liberal construction in favor of coverage, while t h e exclusion is subject to a narrow construction against the insurer. 8 A COUCH ON INSURANCE § 119:26 (3d ed. 2009) (footnotes omitted) [hereinafter C OUCH ] . The author states that both the language of exclusion and of inclusion s h o u ld be read to favor coverage. We interpret that language in light of the T e x a s Supreme Court's identification of what it calls the fundamental point, n a m e ly , to determine "what coverage is intended to be provided by insurers and a c q u ir e d and shared by premium-payers." Lindsey, 997 S.W.2d at 158. Jolly C h e f's intent is relevant, along with that of the insurers, in determining the r e a s o n s for the use of different policies. The CGL Policy that Jolly Chef purchased was found not to apply because B o n illa was not an "insured." That decision is not challenged on appeal. Though c o v e r a g e by the CGL Policy is not an issue, the policy itself is relevant. Had an in s u r e d under both the CGL and the Auto Policy been the claimant (Jolly Chef, fo r example), the dispute would have had a much different form. If the Auto P o lic y did not cover the occurrence because the injury did not arise from the use o f a covered auto, then the CGL Policy exclusion of injuries arising from the use w o u ld not have applied and the claim would have been covered ­ absent another e x c lu s io n . The two policies together created a range of coverage for Jolly Chef. EMC has argued that the accident is covered by the CGL Policy, thereby e x c lu d in g coverage by the Auto Policy. When language of coverage in a business a u t o policy is virtually identical to language of exclusion in a CGL policy, "[s]ome a c c i d e n t s would be covered by the auto policy, others by the CGL. A single a c c id e n t could not be covered by both." Travelers Indem. Co. v. Citgo Petroleum C o r p ., 166 F.3d 761, 769 (5th Cir. 1999). I n addition, even with a liberal reading of insurance policies, it is doubtful t h a t dovetailed policy terms such as this should be interpreted a certain way if 5

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No. 09-10476 t h e named insured were seeking coverage but differently if someone else such a s those who are not the purchasers seek coverage. Had Jolly Chef been found lia b le in the state court suit, would this claim have been considered outside the c o v e r a g e of the Auto Policy and within the coverage of the CGL Policy? If so, s h o u ld the opposite result obtain here just because Bonilla is the claimant and is not an insured under the CGL Policy? As a final general word about interpretation, we note that "many insurers a c t u a lly intended the usages [of this policy term about "use" of an automobile] t o be a device for coordinating coverage between two concurrent policies, one c o v e r in g the insured's automobile and the other covering the insured's `general' lia b ilit y ." COUCH § 119:26. O u r point in all of this is only that insurance policies are to be interpreted a s written, with assumptions favoring coverage when conditions for those a s s u m p t io n s exist, and reliance upon the intent of the actual parties to the p o lic ie s when necessary. W e now examine the coverage under the Auto Policy. B. The Auto Policy T h e first page of the Auto Policy is captioned "Commercial Auto D e c la r a t io n s ­ Business Auto Coverage." That same page states that Jolly Chef is the named insured, that the "form of business" is a corporation, and that the " d e s c r ip t io n " of the business is "mobile catering." The policy, clearly, was not in t e n d e d to apply to a motor vehicle used by individuals simply in their daily a c t iv it ie s of traveling to and from work or school or otherwise. The policy was is s u e d specifically for vehicles involved in a mobile catering business. T h e entities who were insured included all who were "using with [Jolly C h e f 's ] permission a covered auto." Since Bonilla leased Truck 219 from Jolly C h e f, the parties agree there was coverage for Bonilla. The disagreement is

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No. 09-10476 w h e t h e r there was coverage for this accident. The accident must have been one " r e s u lt in g from the ownership, maintenance or use of a covered auto." The difficulty in the legal analysis arises from the need to determine the s ig n ific a n c e of the fact that Truck 219 was a vehicle designed for a special use. It had kitchen facilities built into it. Cleaning necessary from the use of that e q u ip m e n t set in motion the events resulting in the accident, and a pilot light t h a t was part of the equipment was among the causes. N o definition of "use" appears in the Auto Policy. The district court held t h a t coverage under the Auto Policy was not affected by the special use that Jolly C h e f's mobile catering trucks served. Instead, the district court required the use o f the vehicle to be one involving transportation. There is certainly caselaw from w h ic h to draw that conclusion. We turn now to Texas law. U n d e r Texas law, liability for "use" under this policy language requires t h a t "a causal connection or relation . . . exist between the accident or injury and t h e use of the motor vehicle." Lindsey, 997 S.W.2d at 156. "The term `use' is the g e n e r a l catchall of the insuring clause, designed and construed to include all p r o p e r uses of the vehicle not falling within other terms of definition such as o w n e r s h ip an[d] maintenance." State Farm Mut. Auto. Ins. Co. v. Pan Am. Ins. C o ., 437 S.W.2d 542, 545 (Tex. 1969). "[I]f a vehicle is only the locational setting fo r an injury, the injury does not arise out of any use of the vehicle." Lindsey, 9 9 7 S.W.2d at 156 (citing LeLeaux v. Hamshire-Fannett Indep. Sch. Dist., 835 S .W .2 d 49, 51-52 (Tex. 1992)). For additional understanding of the language, we look again at the two in s u r a n c e treatises that the Lindsey court relied upon. The Texas Supreme C o u r t said that these two treatises derived a helpful test from numerous judicial o p in io n s throughout the country: F o r an injury to fall within the "use" coverage of an a u t o m o b ile policy (1) the accident must have arisen out of the

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No. 09-10476 i n h e r e n t nature of the automobile, as such, (2) the accident must h a v e arisen within the natural territorial limits of an automobile, a n d the actual use must not have terminated, (3) the automobile m u s t not merely contribute to cause the condition which produces t h e injury, but must itself produce the injury. I d . at 157 (quoting COUCH § 119:37; the court also cited 6B JOHN A. APPLEMAN, I NSURANCE LAW AND PRACTICE § 4317 (Buckley ed. 1979) [hereinafter A PPLEMAN]) (footnoted citations converted to this parenthetical). I n a way, this language begs our question, one the Texas Supreme Court d id not need to answer. The Lindsey court said the inherent use was one "of the v e h ic le qua vehicle, rather than simply as an article of property." Id. at 156. The court cited a treatise concluding that this provision in "an automobile l i a b ility policy, means the use of a vehicle as such and does not include a use w h ic h is foreign to a vehicle's inherent purpose but to which a vehicle might c o n c e iv a b ly be put." Id. at 156 n.12 (quoting APPLEMAN § 4316). The "inherent p u r p o s e " of a mobile catering truck certainly could be seen as including the use a n d maintenance of its kitchen facilities, though the inherent purpose of a usual v e h ic le would not include cooking. B e fo r e trying to choose between generic and special purposes, we examine L in d s e y further. In its opinion, the court held that a nine-year-old boy's act of c lim b in g through a truck's sliding rear window to retrieve his coveralls c o n s t it u t e d "use" of the vehicle as contemplated within an automobile policy. Id. a t 154. While entering the truck, the boy accidentally touched a loaded shotgun t h a t rested on a mount in the truck, causing the gun to discharge. Id. The shot s t r u c k Lindsey, who was sitting in a car parked next to the truck. Id. The court applied the three factors we already noted and held that the in ju r y arose out of the use of the truck. Id. at 158. The boy's entry may have b e e n unorthodox but "it was not an unexpected or unnatural use of the vehicle, g iv e n his size, the fact that the vehicle was locked, and the nature of boys," and 8

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No. 09-10476 it was his entry that caused the injury. Id. Though the third factor is

p a r tic u la r ly difficult, the court found that because the use of the truck was not u n e x p e c t e d or unnatural, the truck produced the injury. Id. at 159-60. W e need to choose between EMC's position that a vehicle qua vehicle r e fe r s to its simple, if broadly defined, transportation capabilities, and Bonilla a n d Molina's argument that coverage is for accidents arising from use of a m o b ile catering truck qua mobile catering truck. Though we have been referred to many opinions from Texas and e ls e w h e r e , very few of them concern this specific issue. Almost none of them in v o lv e special business purposes of a vehicle. Molina argued that we could find c o v e r a g e even if we view this explosion as resulting from the use of this vehicle s im p ly as a means of transportation. That argument starts with the reality that T r u c k 219 was equipped with a kitchen. According to Dallas City Code

p r o v is io n s , all licensed mobile food units were required daily to return to the c o m m is s a r y to be cleaned and stocked for the next day's route. Dallas City Code § 17-8.2(g)(1), (h)(2)(F)(v). The full scope of Truck 219's purpose was to transport fo o d and personnel and also to prepare and sell the food. Molina could not safely b e transported with a greasy floor. Moreover, the food could not be prepared and s o ld if the truck were not clean and sanitary. Id. § 17-8.2(j)(2). T h e problem with this argument, i.e., that anyone riding in the truck w o u ld be unsafe unless the floor were clean, is that it still relies on the special p u r p o s e of the vehicle. That reliance does not change if we consider coverage for " m a in te n a n c e ." If this vehicle did not contain a mobile kitchen, this particular n e e d to clean or this particular need to stand in the service area would not have e x is t e d . If the truck did not have a stove with a pilot light, this cause of the e x p lo s io n would not have been present. The cleaning of this food preparation a r e a does not undisputably reveal use or maintenance of a vehicle qua vehicle, b u t it does show use or maintenance of the kitchen qua kitchen. 9

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No. 09-10476 T o repeat our analytical goal in this discussion, we are seeking to apply t h e first factor from Lindsey that "the accident must have arisen out of the in h e r e n t nature of the automobile, as such . . . ." Lindsey, 997 S.W.2d at 157. Each party argues that the answer does not turn on ambiguity. As we have d is c u s s e d , the intent of the parties is relevant, but no one alleges there is a fact is s u e that requires us to remand. We conclude that EMC's argument demands an unnatural reading of the p o lic y language. There is nothing in the caselaw to suggest that Texas would in t e r p r e t "use" under a business auto policy, in which the stated purpose of the v e h ic le s being insured was for mobile catering, in a way that did not include the h a z a r d s that arise from maintaining the mobile catering equipment. Cleaning a mobile kitchen was not simply a speculative event that might conceivably o c c u r , nor was the cleaning foreign to the vehicle's inherent purpose. W e acknowledge finding no published Texas caselaw so holding. We c o n c lu d e , though, that the Texas Supreme Court if presented with this precise is s u e would take as a natural next step from Lindsey that this accident occurred fr o m "the inherent nature" of this mobile catering truck. The vehicle intended is not some mystical, generic vehicle, but the one specifically insured by the p a r tie s to the policy. The special nature of this vehicle was not hidden or o t h e r w is e unknown ­ it literally was in black and white in the policy. W e also rely in part on one of the treatises seen as persuasive by the L in d s e y court. In discussing business use provisions generally, the author states t h a t the risks associated with the use of an automobile to be covered under an a u t o m o b ile policy may be defined in terms of the insured's business or some o t h e r reference. COUCH § 120:1. This is partly because of "the fact that many b u s in e s s uses present significantly different risks than personal use." Id. "Accordingly, automobile liability policies frequently provide for coverage of the

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No. 09-10476 v e h ic le for business or commercial purposes only or for some specifically d e s c r ib e d business use." Id. The policies at issue in this case defined the business as "mobile catering" a n d expressly covered mobile catering trucks which were equipped with a k it c h e n to prepare food. Though there was no express inclusion or exclusion of u s e s relating to the business purpose, such purpose would be the intent of the p a r tie s in contracting a "commercial automobile liability policy" for automobiles e n g a g e d in the mobile catering business. We go no further than to hold, in what is a slight Erie guess but relying on s u b s t a n t ia l direction from the Texas courts, that a business vehicle policy covers t h e intended and identified uses of that business vehicle. The "injury-producing a c t " was cleaning the floor of the truck so that food could safely be prepared. The cleaning was a natural, expected, and necessary use of mobile catering T r u c k 219 and was covered by the Auto Policy. W e still need to consider two other factors mentioned in Lindsey. The next fa c t o r is whether the accident occurred within the natural territorial limits of t h e automobile. Lindsey, 997 S.W.2d at 157. Truck 219 was parked on Jolly C h e f's lot at the time of the accident, and the injury occurred while Molina was in s id e of the truck. That factor is satisfied. T h e third factor is whether the vehicle produced the injury. Id. The L in d s e y court found this factor troublesome because it is difficult to decide what r o le a vehicle plays in producing an injury. Id. at 157-58. EMC argues this factor is not met because nothing about the truck p r o d u c e d the injury. Rather, the injury was caused by the flammable substance ig n it e d by the pilot light. EMC supports this argument with language from L in d s e y that "a firearm discharge . . . does not arise out of the use of the vehicle m e r e ly because the gun rack is permanently attached. Rather, the purpose and c ir c u m s t a n c e s of the injury-producing act are determinative." Id. at 163 11

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No. 09-10476 T h e r e is a distinction between situations where the vehicle is only in c id e n t a lly involved ­ it is the "mere situs" of an accident that could have o c c u r r e d anywhere ­ and those "where the injury-producing act involved the use o f a vehicle as a vehicle." Tex. Farm Bureau Mut. Ins. Co. v. Sturrock, 65 S.W.3d 7 6 3 , 767 (Tex. App. ­ Beaumont 2002). We are not persuaded by this reasoning. Most of the strength of EMC's a r g u m e n t is lost once we define "inherent nature" in the way that we have. This p o lic y provided coverage for the uses of this mobile catering truck as just such a truck. The known and expected uses of this vehicle included activities relating t o cooking. The cleaning and pouring of the substance on the floor and the r e s u lt in g fire from the stove's pilot light produced the injury. Each of the Lindsey factors is satisfied. There was coverage under the A u t o Policy for injuries arising from use and maintenance of the vehicle. Because vehicle use is an exclusion under the CGL Policy, it likely would not h a v e applied. Our holding gives a consistent reading to each policy. C . The Umbrella Policy The Commercial Umbrella Policy can apply in two instances. First, if t h e r e is coverage under the Auto Policy, there is coverage under the Umbrella P o lic y . Second, if there is no coverage under the Auto Policy, then there may be e x c e s s coverage of the retained limit under the Umbrella Policy provided the o c c u r r e n c e is "otherwise covered by" the Umbrella Policy. There are substantial arguments made regarding this policy that u n d e r s t a n d a b ly focus on the harder question of coverage if the Auto Policy does n o t apply. Because we have concluded that the Auto Policy provides coverage, t h e Umbrella Policy does as well. B o n illa was using Truck 219 with Jolly Chef's permission. The Auto Policy p r o v id e s coverage, and so does the Umbrella Policy.

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No. 09-10476 D . The Employee Injury Exclusion In the district court and now on appeal, EMC claimed that even if we find t h e r e was "use" of Truck 219 as required under the Auto Policy, coverage is still e x c lu d e d under the Employee Injury Exclusion. The referenced exclusion prevents coverage for bodily injury to "[a]n e m p lo y e e of the insured arising out of and in the course of employment by the in s u r e d ." The "insured" was Bonilla, and the potential "employee" was Molina. T h e r e is certainly Texas law to apply on the issue. "The test to determine w h e t h e r a worker is an employee or an independent contractor is whether the e m p lo y e r has the right to control the progress, details, and methods of o p e r a t io n s of the employee's work." Thompson v. Travelers Indem. Co. of R.I., 7 8 9 S.W.2d 277, 278 (Tex. 1990) (citation omitted). "The employer must control n o t merely the end sought to be accomplished, but also the means and details of it s accomplishment as well." Id. (citation omitted). EMC claims that if there is n o coverage under the Auto Policy because of the Employee Injury Exclusion, t h e r e is likewise no coverage under the Umbrella Policy. Though EMC raised this issue in the district court, the court did not rule o n it because of its decision on issues regarding "use" of the vehicle. Issues that w e r e raised but not resolved in district court should be considered first by that c o u r t. KSLA-TV, Inc. v. Radio Corp. of Am., 693 F.2d 544, 546 (5th Cir. 1982). We confine our analysis to the issues that were evaluated by the district c o u r t. This Employee Injury Exclusion can be considered by the district court s h o u ld the issue again be pressed. W e REVERSE and REMAND for proceedings consistent with this opinion.

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