Adv Env Recycl Technol, Inc. v. Amer Intl Spclt Lines Ins Co.

Filing

UNPUBLISHED OPINION FILED. [09-11075 Affirmed ] Judge: EBC , Judge: LHS , Judge: CH Mandate pull date is 11/12/2010 [09-11075]

Adv Env Recycl Technol,e: 09-11075 Document: 00511271440 Cas Inc. v. Amer Intl Spclt Lines Ins Co.

Page: 1 Date Filed: 10/22/2010

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IN THE UNITED STATES COURT OF APPEALS United States Court of Appeals FOR THE FIFTH CIRCUIT Fifth Circuit FILED
October 22, 2010 N o . 09-11075 Lyle W. Cayce Clerk

A D V A N C E D ENVIRONMENTAL RECYCLING TECHNOLOGIES INC., P la in t iff - Appellant v. A M E R I C A N INTERNATIONAL SPECIALTY LINES INSURANCE CO., Defendant - Appellee

A p p e a l from the United States District Court for the Northern District of Texas USDC No. 3:08-CV-837

Before CLEMENT, SOUTHWICK, and HAYNES, Circuit Judges. P E R CURIAM:* A d v a n c e d Environmental Recycling Technologies Inc. (AERT) appeals the d is t r ic t court's grant of summary judgment to AERT's insurer, American I n t e r n a t io n a l Specialty Lines Insurance Co. (AISLIC). We AFFIRM. I . Facts and Background A E R T manufactures recycled wood composite building products, including d e c k in g and other exterior products. AERT was named as a defendant in two s e p a r a t e class action lawsuits, consolidated in the United States District Court
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
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Dockets.Justia.com

Case: 09-11075 Document: 00511271440 Page: 2 Date Filed: 10/22/2010

No. 09-11075 f o r the Western District of Washington ("the Mold Lawsuits"). In the Mold L a w s u it s , AERT customers sought damages based on allegations that AERT's C h o ic e D e k products were vulnerable to mold, mildew, and fungal growth. The c la im s were based upon allegations that AERT's products were defectively d e s ig n e d and manufactured, not suitable for their intended use, and not suitable fo r use as they were warranted and represented. The customers further alleged t h a t AERT had knowledge of those defects. Significantly, the only damage a lle g e d in the Mold Lawsuits is to the AERT products themselves and not to any a d d it io n a l property or to people. AISLIC issued to AERT consecutive policies providing umbrella general lia b ilit y coverage insuring operations in Arkansas, Texas, and Louisiana (" U m b r e lla Policies") in addition to policies providing underlying commercial g e n e r a l liability insurance ("Primary Policies"). AERT tendered its defense in t h e Mold Lawsuits to AISLIC, which declined to defend. The Umbrella Policies provided two kinds of coverage to AERT in addition t o the Primary Policies: "Coverage A," excess follow-form liability coverage from t h e Primary Policies for property damage, and "Coverage B," coverage against d a m a g e s that AERT was obligated to pay because of bodily injury or property d a m a g e caused by an "occurrence" not covered by the Primary Policies. The U m b r e lla Policies define "occurrence" as "an accident, including continuous or r e p e a t e d exposure to substantially the same generally harmful conditions." The U m b r e lla Policies also provided for a variety of express exclusions from coverage. A E R T filed this lawsuit asking for a declaratory judgment that AISLIC m u s t defend the Mold Lawsuits under Coverage B of the Umbrella Policies and s e e k in g damages under a Texas statute mandating prompt payments of certain in su ra n ce claims, TEX. INS. CODE §§ 542.051­.061 ("Texas Prompt Pay Statute"). The parties filed cross-motions for summary judgment. AISLIC's motion also in c lu d e d a request for summary judgment on the issue of whether AISLIC had 2

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No. 09-11075 a duty to indemnify AERT. While the motions were pending, the Mold Lawsuits s e t t le d , and AERT amended its complaint to include a request for indemnity for t h e amounts paid in settlement. The district court granted AISLIC's motion for s u m m a r y judgment and simultaneously entered a final judgment in AISLIC's fa v o r , dismissing all of AERT's claims with prejudice. AERT timely appealed. I I . Standard of Review W e review a district court's grant of summary judgment de novo and apply t h e same standard as the district court. Hill v. Carroll County, Miss., 587 F.3d 2 3 0 , 233 (5th Cir. 2009). We "view all disputed facts and inferences in the light m o s t favorable to the non-movant." Id. Summary judgment is properly granted if the record shows "that there is no genuine issue as to any material fact and t h a t the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c). We will accordingly affirm summary judgment where the non-movant "fail[ed] t o make a showing sufficient to establish the existence of an element essential t o that party's case, and on which that party will bear the burden of proof at t r ia l." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). I I I . Discussion O n appeal, AERT contends that the district court erred in holding that A I S L I C had no duty to defend because (1) AERT alleged an "occurrence" under t h e Umbrella Policies, (2) the court improperly concluded that the "product r e c a ll" exclusion was relevant, and (3) no other exclusions precluded the duty to d e fe n d . AERT also suggests error in the district court's choice of law. Finally, A E R T contends that summary judgment should not have been granted on its c la im for indemnity. As a result of these arguments, AERT also seeks revival of it s Texas Prompt Pay Statute claims. A. Choice of Law I n a footnote, AERT suggests that the district court erred in applying A r k a n s a s law rather than Texas law to its claims. AERT first asserts that Texas 3

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No. 09-11075 l a w should apply "[f]or the reasons briefed to the district court." We do not c o n s id e r arguments on appeal by incorporation. Turner v. Quarterman, 481 F.3d 2 9 2 , 295 n.1 (5th Cir. 2007); Summers v. Dretke, 431 F.3d 861, 881 n.12 (5th Cir. 2 0 0 5 ). I n addition to its "incorporation" argument, AERT argues in the footnote t h a t AISLIC underwrote the policies in Dallas and that AERT defended the p o lic ie s with Dallas counsel. AERT cites to two cases but does not address the r e le v a n t choice of law factors in any meaningful way. We conclude that AERT's fo o t n o t e does not constitute sufficient briefing to preserve the issue on appeal. See FED. R. APP. P. 28(a)(9)(A) (requiring appellant's brief to include "appellant's c o n t e n t io n s and the reasons for them, with citations to the authorities and parts o f the record on which the appellant relies"); see also Bridas SAPIC v. Gov't of T u r k m ., 345 F.3d 347, 356 n.7 (5th Cir. 2003).1 r e m a in in g contentions under Arkansas law. B . Duty to Defend Under Arkansas law, an insurer's duty to defend arises when there is a " p o s s ib ilit y " that the injury or damage may fall within the policy coverage. Murphy Oil USA, Inc. v. Unigard Sec. Ins. Co., 61 S.W.3d 807, 813 (Ark. 2001). Generally, the allegations of the complaint determine whether the duty to defend We will analyze AERT's

Even if we were to consider the merits of the choice of law argument, we do not find error in the district court's selection of Arkansas law. In this diversity case, we apply the choice of law rules of the forum state, Texas. Cantu v. Jackson Nat'l Life Ins. Co., 579 F.3d 434, 437 (5th Cir. 2009). Under Texas law, where there is no contract designating a choice of law, we are to examine the factors from section 188 of the Restatement (Second) of Conflict of Laws to determine which state's law applies. Sonat Exploration Co. v. Cudd Pressure Control, Inc., 271 S.W.3d 228, 231 (Tex. 2008). The five factors to be considered are: (1) the place of contracting, (2) the place of contract negotiation, (3) the place of performance, (4) subject matter location, and (5) the parties' domicile, place of incorporation, and place of business. Id. at 233; RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 188(2) (1971). While no state overwhelmingly meets all of these factors, Arkansas, where AERT has its principal place of business, is an appropriate choice particularly in light of the fact that the Umbrella Policies were tailored to Arkansas law, thus showing that the parties anticipated that Arkansas law would apply.

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No. 09-11075 is triggered, and a court should resolve any doubt in favor of the insured. Id. at 8 1 2 , 814. "[O]nce the insured establishes a prima facie case for recovery under the in s u r a n c e policies, the burden shifts to the insurer to prove that the damages c la im e d were not covered under the policy." Farm Bureau Mut. Ins. Co. of Ark., I n c . v. Foote, 14 S.W.3d 512, 517 (Ark. 2000). "[W]here terms of the policy are c le a r and unambiguous, the policy language controls, and absent statutory s t r ic tu r e s to the contrary, exclusionary clauses are generally enforced according t o their terms." Essex Ins. Co. v. Holder, 261 S.W.3d 456, 458 (Ark. 2007). We c o n s t r u e insurance policy language "in its plain, ordinary, and popular sense" a n d will only resort to the rules of construction if the language is ambiguous. McGrew v. Farm Bureau Mut. Ins. Co. of Ark., 268 S.W.3d 890, 894­95 (Ark. 2 0 0 7 ). T h e parties disagree about whether the events alleged in the Mold L a w s u its constitute an "occurrence" under the Umbrella Policies. If the events a lle g e d in the Mold Lawsuits were an "occurrence," they dispute whether any e x c lu s io n s apply. We conclude that we need not reach the question of the e x c lu s io n s2 because AERT has failed to establish that the Mold Lawsuits allege a n "occurrence" under the Umbrella Policies. W h a t e v e r the merits of AERT's arguments would be if we were writing on a blank slate, we are not. The Arkansas Supreme Court has addressed this i s s u e squarely, and we are bound by its determinations of Arkansas law. The U m b r e lla Policies define "occurrence" as "an accident, including continuous or

AERT contends that Coverage B applies to property damage "not covered under Coverage A," arguing that this provision broadens the coverage provided. Nonetheless, AERT does not dispute that the duty to defend is triggered only if there is "property damage" caused by an "occurrence." We conclude that the Mold Lawsuits did not so allege an occurrence. Accordingly, we need not reach the question of whether Coverage B is subject to the exclusions upon which AISLIC also relied.

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No. 09-11075 r e p e a t e d exposure to substantially the same generally harmful conditions." In E s s e x , that court was faced with a definition of "occurrence" very similar to the o n e here, and the court held that "accident" is unambiguous under Arkansas la w . 261 S.W.3d at 460. "Accident" means "an event that takes place without o n e 's foresight or expectation ­ an event that proceeds from an unknown cause, o r is an unusual effect of a known cause, and therefore not expected." Id. E s s e x involved a suit brought against a home builder for breach of c o n t r a c t, breach of an express warranty, breach of implied warranties, and n e g lig e n c e . Id. at 457. The court concluded unequivocally that "[f]aulty

w o r k m a n s h ip is not an accident." Id. at 460. AERT seeks to distinguish Essex b eca u se it involved workmanship rather than product manufacturing,3 however, it does not explain why that distinction makes a difference. Essex stands for the p r o p o s it io n that shoddy work (whether in manufacturing a product or working a t a construction site) which then fails without collateral damage to a person or o t h e r property is not an "accident" from the standpoint of the insured. In this c a s e , the only damages AERT's customers alleged were to AERT's products. We h o ld that the events alleged in the Mold Lawsuits were not "accidents" under the U m b r e lla Policies. W e conclude that the Mold Lawsuits do not allege an "occurrence" and t h e r e fo r e hold that AISLIC did not have a duty to defend the Mold Lawsuits. For this same reason, AISLIC cannot be liable under the Texas Prompt Pay Act S t a tu t e , even if it applies here, for failing to pay for a defense it did not owe.

AERT also attempts to distinguish Essex based on the fact that a performance bond was implicated in that case. However, whether or not AERT can obtain insurance, indemnity, or a performance bond for its putative warranty and contract obligations for defective products makes no difference to the question of whether the Mold Lawsuits allege an "occurrence."

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No. 09-11075 C . Indemnity A E R T also contends that the district court should not have entered a final ju d g m e n t because the issue of indemnity was still to be decided. AERT argues t h a t , even if AISLIC did not owe AERT a duty to defend, AERT might still be e n tit le d to indemnity. A duty to defend is determined based on the "allegations o f the complaint," whereas a duty to indemnify depends on "facts established at t r ia l." Madden v. Cont'l Cas. Co., 922 S.W.2d 731, 734 (Ark. Ct. App. 1996). We n e e d not address whether, in theory, a duty to indemnify can exist under A r k a n s a s law where no duty to defend exists4 because we conclude that the d is t r ic t court did not reversibly err in this case regardless. In its original motion for summary judgment and accompanying brief, A I S L I C stated several times that it had no "duty to defend or indemnify" AERT, r e s t in g its argument as to both duties on the same policy language: no " o c c u r r e n c e " and the applicability of certain exclusions. At the time AISLIC's m o t io n was filed, AERT had not yet pled a claim for indemnity; nonetheless, it n e v e r contended to the district court that AISLIC's motion was premature. AERT never contended to the district court that it lacked notice of the grounds fo r AISLIC's motion on indemnity. In its pre-argument briefing to this court, A E R T similarly never challenged the district court's ruling on the grounds of no n o t ic e or inadequate notice. Instead, AERT only contended to this court that A I S L I C was required to put on "facts" to defeat a claim of indemnity.5 Only after

For an analysis of the difference between the two concepts and an explanation of one state's view on how a duty to indemnify might logically exist even if the duty to defend were never triggered, see D.R. Horton - Texas, Ltd. v. Markel International Insurance Co., 300 S.W.3d 740, 743­45 (Tex. 2009) (The two duties "enjoy a degree of independence from each other [such that] . . . the existence of one does not necessarily depend on the existence or proof of the other."). The "issue presented" for this subject was phrased as follows: "Did the district court err in dismissing AERT's claim for indemnity in connection with the Mold Lawsuits without examining any `facts' outside of the pleadings relied upon to decide AISLIC's duty to defend?"
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No. 09-11075 a discussion of this issue at oral argument did AERT file a supplemental brief a r g u in g that AISLIC's motion did not put AERT on notice that it was seeking s u m m a r y judgment and asserting that the matter was not ripe for adjudication w h e n filed. A E R T 's arguments are unavailing. First, because AERT has the initial b u r d e n of proving coverage, it could not simply sit silent in the face of AISLIC's m o t io n for summary judgment on the issue of indemnity. Instead, AERT was r e q u ir e d to bring forth "facts" showing an occurrence. See Hunt v. Pyramid Life I n s . Co., 732 S.W.2d 167, 169 (Ark. 1987) (en banc) ("It is well settled that the in s u r e d . . . has the burden of proving coverage."); Smith v. Am. Family Life A s s u r a n c e Co. of Columbus, 584 F.3d 212, 220 (5th Cir. 2009) ("[The insured] b o r e the burden of establishing coverage under her policy. . . . She failed to p r o d u c e any evidence that she could satisfy this requirement. Therefore, the d is t r ic t court erred in denying [the insurer's] motion for summary judgment and in granting her cross-motion." (internal citations omitted)). Second, with respect t o ripeness, before the court ruled on AISLIC's motion, the Mold Lawsuits s e t t le d , and AERT amended its complaint to seek indemnity for those s e t t le m e n t s . Thus, regardless of whether ripeness is evaluated at the time of the filin g of the active complaint or at the time of the entry of judgment, the question o f indemnity was ripe for decision here. Finally, AISLIC did request summary ju d g m e n t on indemnity in several places, thus putting AERT on notice. F u r t h e r , even if we were to conclude that AISLIC should have been more s p e c ific -- a n d , indeed, even if we were to conclude that AISLIC did not move for s u m m a r y judgment on indemnity or put AERT on adequate notice--AERT has fa ile d to show harmful error here. The settlement of the Mold Lawsuits, cited b y AERT in its supplemental brief, is a matter of public record and indicates a la r g e class joined in the issue of whether there was a "defect in ChoiceDek d e c k in g and railing products . . . result[ing] in fungal, mold, or mildew growth 8

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No. 09-11075 t h a t causes extensive permanent discoloration." Pelletz v. Weyerhaeuser Co., 255 F .R .D . 537, 539 (W.D. Wash. 2009); see also Pelletz v. Weyerhauser Co., 592 F. S u p p . 2d 1322, 1325 (W.D. Wash. 2009). The court's orders regarding the s e t t le m e n t evince no "facts" that are different from those alleged in the Mold L a w s u i t s , and, indeed, individual variations among the claimants would have b e e n inconsistent with the court's finding of commonality and conclusion that c la s s action treatment was proper. See Pelletz, 255 F.R.D. at 540

(" [C ]o m m o n a lit y exists because all Class members allegedly share the same p r o b le m : a defect in their ChoiceDek product causing significant recurring m o ld in g problems on their decks. Common questions include whether the

p r o d u c t is defective, whether Defendants knew or should have known of the d efect, and whether Defendants made material misrepresentations in ChoiceDek m a r k e t in g materials."). AERT has not pointed to any "facts" different from those a lle g e d in the Mold Lawsuit complaints. Thus, a remand for consideration of the " fa c t s " would be an exercise in futility because the district court already had the n e c e s s a r y facts when it decided the indemnity issue. See Love v. Nat'l Med. E n te r s ., 230 F.3d 765, 770­71 (5th Cir. 2000) (finding harmless error where d is t r ic t court granted summary judgment without proper notice on claims first m a d e in amended complaint filed after motion for summary judgment because (1 ) the non-movant waived any procedural error by failing to object in the d is t r ic t court and (2) the non-movant pointed to no facts showing that summary ju d g m e n t outcome was erroneous). IV. Conclusion F o r the foregoing reasons, the judgment of the district court is A F F IR M E D .

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