DPC Industries, Inc. v. American International

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DPC Industries, Inc. v. American International

Doc. 0

Case: 09-20634

Document: 00511213196

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Date Filed: 08/24/2010

IN THE UNITED STATES COURT OF APPEALS United States Court of Appeals FOR THE FIFTH CIRCUIT Fifth Circuit FILED
August 24, 2010 N o . 09-20634 Lyle W. Cayce Clerk

D P C INDUSTRIES, INC. P la in t if f -A p p e lla n t , v. A M E R I C A N INTERNATIONAL SPECIALTY LINES INSURANCE CO., D e fe n d a n t -A p p e lle e .

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

Before DAVIS, SMITH and HAYNES, Circuit Judges. W . EUGENE DAVIS, Circuit Judge: P la in t iff DPC Industries, Inc. appeals the summary judgment rendered a g a in s t it and the dismissal of its claim for additional insurance coverage a g a in s t its liability insurer, American International Specialty Lines Insurance C o . We affirm. I. This case involves an insurance coverage dispute relating to a release of a toxic chemical from a plant operated by an affiliate of the plaintiff which is one o f the insureds under the disputed policy. American International Specialty L in e s Insurance Co. ("AISLIC") issued a combined Primary and Umbrella c o m p r e h e n s iv e general liability policy to the named insured DX Holding

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Case: 09-20634

Document: 00511213196

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Date Filed: 08/24/2010

No. 09-20634 C o m p a n y , Inc.("DX Holding"). The primary policy provides a limit of $1 million p e r occurrence and a general aggregate limit of $2 million under both Coverage A for general liability for bodily injury and property damage and Coverage D (p a r t s 1 and 2) for pollution coverage. The umbrella policy provides a second la y e r of coverage with a policy limit of $10 million under Coverage A and $4 m illio n under Coverage D. The higher limit under Coverage A was a major r e a s o n for this litigation. E n d o r s e m e n t No. 2 to the policy adds a Broad Form Named Insured d e fin it io n which includes as a named insured any subsidiary or subsidiary t h e r e o f of the named insured. DPC Industries, Inc. ("Industries"), the appellant i n this case, is a subsidiary of DX Holding, the named insured. DPC

E n t e r p r is e s , Inc. is a subsidiary of Industries. DPC Enterprises is general p a r tn e r of DPC Enterprises, L.P. (collectively "Enterprises"). DX Holding and it s subsidiaries will be collectively referred to as the DX entities or DX s u b s id ia r ie s . Because the limit under coverage A is $10,000,000 and the limit fo r pollution damage under Coverage D is only $4,000,000, Industries sought to g e t as much coverage as possible under coverage A as opposed to Coverage D. T w o other provisions of the insurance policy are relevant to this case. The p o lic y contains a "Separation of Insureds" provision. That provision reads Except with respect to the Limits of Insurance, and any rights or d u t i e s specifically assigned to the first Named Insured, this in s u r a n c e applies: a. b. As if each named Insured were the only Named Insured; and Separately to each insured against whom claim is made or s u it is brought.

T h e effect of this provision is that each insured is treated individually as far as d e t e r m in a t io n of available coverage, except that one insurance limit applies to a ll insureds collectively. 2

Case: 09-20634

Document: 00511213196

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Date Filed: 08/24/2010

No. 09-20634 T h e policy also includes an exclusion to Coverage A referred to as the " c o v e r e d by other coverages exclusion" or "exclusion u." 2. E x c lu sio n s

This insurance does not apply to: .... u. Covered by Other Coverages A n y claim or part thereof which may be alleged as c o v e r e d under this Coverage of this Policy, if we have a c c e p t e d coverage or coverage has been held to apply fo r such claims or part thereof under any other C o v e r a g e in this Policy. This exclusion does not apply t o any claim for medical expenses under Coverage C c a u s e d by bodily injury which is covered under C o v e r a g e A. A similar exclusion applies to coverage under Coverage D-2.1 These exclusions p r e v e n t stacking of insurance coverages provided in the policy and make it clear t h a t the coverage under Coverage A and the coverage under Coverage D-2 for p o llu t io n are mutually exclusive for each insured. Enterprises owns and operates a plant described as a chlorine repackaging fa c ilit y in Festus, Missouri. Industries provides technical support and training t o the Festus facility. The accident giving rise to the personal injuries and p r o p e r t y damage in this case occurred on August 14, 2002, when chlorine gas w a s released from the Festus facility. AISLIC was notified of the accident by J a c k Holcomb of DX Service Company. On August 26, 2002, AISLIC accepted c o v e r a g e for the claim under the above described policy's Coverage D, subject to

Exclusion a. to Coverage D-1 and D-2 states that this insurance coverage under D does not apply to claims or loss: a. Which may be alleged as covered in whole or in part under this Coverage of this Policy, if we have accepted coverage or if coverage has been held to apply for such claim under any other Coverage of this Policy.

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Date Filed: 08/24/2010

No. 09-20634 a reservation of rights. The only insured referenced in the August 26 letter is D X Holding - the parent of Industries and Enterprises. DX's response on August 2 7 , 2002 only mentions coverage for DPC Enterprises, L.P. Numerous claimants filed claims for bodily injury and property damage r e s u lt in g from the release. Lawsuits were brought against Enterprises and o t h e r subsidiaries of DX Holding. Unsettled claims were consolidated and

c e r t ifie d as a class action in a lawsuit styled Jeanette Adams, et al, v. DPC E n te r p r is e s , Del. Inc. et al, in Missouri state court. Goodwin Brothers C o n s t r u c t io n Company filed a separate lawsuit against Enterprises, Industries a n d Jason Wisdom, manager of the Festus facility, in April 2004. The Goodwin s u it specifically named Industries as a defendant. S t a r t in g in October 2005, Holcomb of DX Service Company began efforts t o obtain coverage under Coverage A and thereby obtain the benefit of the higher lia b ilit y policy limit for subsidiaries of DX Holding who were not owners of the F e s tu s facility. Numerous letters were sent to and responses received from A I S L I C . Holcomb notified AISLIC that the claims asserted against DX entities w h ic h did not own and operate the Festus plant, including Industries, were e n tit le d to the benefit of coverage A in the policy. Mr. Holcomb noted that those e n tit ie s do not own and operate the Festus facility and that the allegations in v o lv e d claims of negligent training, supervision and maintenance of the fa c ilit y . Accordingly, DX Holding put AISLIC on notice that they were making a claim for coverage under Coverage A of the policy. AISLIC denied coverage u n d e r Coverage A on the basis of the pollution exclusion in exclusion g., the p r o fe s s io n a l services exclusion in exclusion I.2.b. and exclusion u. Every letter s e n t by AISLIC contains a reservation of rights to assert a defense to coverage.

AISLIC entered into multiple settlement agreements with plaintiffs on b e h a lf of the DX entities. Every settlement obtained releases for all DX entities 4

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Date Filed: 08/24/2010

No. 09-20634 in c lu d in g Industries. AISLIC also settled the Goodwin litigation by paying $ 4 5 0 ,0 0 0 to settle the suit. AISLIC obtained releases for all defendants,

in c lu d in g Industries, which is a released party in the Goodwin Settlement A g r e e m e n t . AISLIC also paid defense costs for all the DX entities, including I n d u s t r ie s . The Adams suit against DX entities including Industries was not s e t t le d at this point. Upon exhausting its policy limits under Coverage D-2, A I S L I C withdrew its defense. Industries and its affiliates settled the Adams litigation with their own fu n d s in May 2007 for $9,400,000. Industries filed suit against AISLIC in Texas s t a t e court for breach of contract, damages and attorneys' fees based on AISLIC's w r o n g fu l denial of coverage under Coverage A of the general liability policy and s o u g h t reimbursement of its settlement costs from the $6 million differential b e tw e e n the policy limits of Coverage A and the policy limits of Coverage D of t h e umbrella policy. AISLIC timely removed the case to federal court based on d iv e r s it y of citizenship. AISLIC filed a motion for summary judgment claiming t h a t exclusion u., the other coverages exclusion, exclusion g., the pollution e x c lu s io n , and exclusion I.2.b., the professional services exclusion, preclude c o v e r a g e under Coverage A. ju d g m e n t. The district court granted summary judgment in favor of AISLIC, finding p r im a r ily that AISLIC provided coverage to Industries under Coverage D-2 and t h e r e fo r e that exclusion u. precludes coverage under Coverage A. This appeal fo llo w e d . II. The issue presented to us is whether Industries is entitled to the benefit o f the additional limit of liability under coverage A of the defendant's policy. As a n initial matter not specifically addressed by the parties, we note that the Industries filed a cross-motion for summary

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Date Filed: 08/24/2010

No. 09-20634 p o llu t io n coverage provided in Coverage D-2 applies to the chlorine release and t h e injuries and damages resulting therefrom. Coverage D-2 states: We will pay those sums that the insured becomes legally obligated t o pay as loss because of claims in the coverage territory for bodily in ju r y , property damage or clean-up costs beyond the boundaries of t h e insured property [within the specified time frame of the policy.] A s described by Industries, the claims against it in the Adams and Goodwin c a s e s were claims of negligent training, supervision and maintenance of the fa c ilit y . Industries's role in the DX entities was to provide technical support and t r a in in g to the Festus facility. Accordingly, claims of bodily injury, property d a m a g e and clean up costs arising from Industries' alleged negligence that c o n t r ib u t e d to the chlorine release fall within Coverage D-2. Industries argues first that Coverage D-2 does not apply because it does n o t own or operate the Festus plant. Therefore, it argues that coverage for its lia b ilit y is under Coverage A. Industries' argument is based on Endorsement N o . 9 to the policy which states: "It is agreed that the following location(s) are in s u r e d property(ies) under Coverage D - Pollution Legal Liability, subject to all P o lic y terms, conditions and exclusions and shall be deemed listed in Item 6 of t h e Declarations." Item 6 is on the first page of the policy and titled "Insured P r o p e r ty : Coverage D Pollution Legal Liability." The Festus facility is listed on t h e endorsement as an "owned or operated" location. Industries thus argues t h a t Coverage D-2 has no application to the claims against it because it does not o w n or operate the Festus facility. We agree with the district court's analysis of t h is issue. Nothing in the policy or Endorsement No. 9 requires that an insured p r o p e r t y be actually owned or operated by the specific entity seeking coverage r e la t e d to that facility.

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Document: 00511213196

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Date Filed: 08/24/2010

No. 09-20634 III. Industries makes two additional arguments that the district court erred in granting summary judgment to AISLIC on this coverage dispute. First, it a r g u e s that exclusion u. for prior accepted coverage does not apply because I n d u s t r ie s never sought and AISLIC never accepted coverage of it under any o t h e r coverage in the policy. Industries states that it only sought coverage under C o v e r a g e A and well-settled Texas law gives the insured the right to choose the a p p lic a b le coverage. In addition, Industries states that when AISLIC merely a g r e e d to defend Industries subject to a reservation of rights, this did not a m o u n t to acceptance of coverage. Industries further submits that the

s e t t le m e n t s paid by AISLIC were on behalf of Enterprises and do not constitute a c c e p t a n c e of coverage for Industries. Addressing Industries's first argument, we find unhelpful the case law c it e d by the parties on Texas law purporting to address whether the insurer or in s u r e d gets to choose which coverage applies when there is more than one o p t io n .2 None of the cases address the question in this case, which requires an a p p lic a t io n of the AISLIC insurance contract to the facts in the summary ju d g m e n t record. Texas law specifically recognizes freedom of contract,

in c lu d in g contracts between an insured and insurer, which must be upheld a b s e n t strong public policy reasons for holding otherwise. Am. Intern. Specialty L in e s Ins. Co. v. Res-Care Inc., 529 F.3d 649, 662-663 (5th Cir. 2008)(internal c it a t io n s and quotations omitted); Fairfield Ins. Co. v. Stephens Martin Paving, L P , 246 S.W.3d 653, 665 (Tex. 2008). Thus, assuming Texas law gives the in s u r e d , where the contract is silent, the right to choose among a policy's c o v e r a g e options, no public policy reason is presented to prevent the parties from

Industries relies on United States Fire Insurance Co. v. Scottsdale Insurance Co., 264 S.W.3d 160, 166-70 (Tex. App. - Dallas 2008, no pet.); American Physicians Insurance Exchange v. Garcia, 876 S.W.2d 842, 855 (Tex. 1994).

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Case: 09-20634

Document: 00511213196

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Date Filed: 08/24/2010

No. 09-20634 g iv in g this option to the insurer in a contract. We agree with the district court t h a t resolution of this case turns on the terms of the policy. The relevant portions of the policy provide 2. E x c lu sio n s

This insurance does not apply to: .... u. Covered by Other Coverages A n y claim or part thereof which may be alleged as c o v e r e d under this Coverage of this Policy, if we have a c c e p t e d coverage or coverage has been held to apply fo r such claims or part thereof under any other C o v e r a g e in this Policy. This exclusion does not apply t o any claim for medical expenses under Coverage C c a u s e d by bodily injury which is covered under C o v e r a g e A. Thus, Exclusion u. states that once AISLIC accepts coverage under any other c o v e r a g e available under the policy, no coverage is available under Coverage A. This provision plainly gives the insurer the right to accept coverage under C o v e r a g e D to the exclusion of Coverage A. Industries argues next that AISLIC did not "accept coverage" under any c o v e r a g e of the policy within the meaning of this exclusion because it merely a g r e e d to defend Industries subject to a reservation of rights. It further argues t h a t settlements paid by AISLIC were on behalf of Enterprises, which is a s e p a r a t e entity from Industries. The facts in this case about coverage of the various DX entities are blurred b e c a u s e neither side did a good job early on to clarify what entities were r e q u e s tin g coverage or what entities were being defended or indemnified by A IS L IC . After the accident was reported by Holcomb, who is listed as

r e p r e s e n t i n g DX Service Company, AISLIC responded and referred to the in su red as DX Holding Company. Neither Industries nor Enterprises, the actual 8

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Date Filed: 08/24/2010

No. 09-20634 o w n e r of the facility, was mentioned. This pattern continued even when events in the Adams litigation and claims in the Goodwin case led Holcomb to request c o v e r a g e under Coverage A in October 2005. In that letter Holcomb did not m e n tio n the individual entities requesting coverage under Coverage A by name, r e f e r r in g only to "numerous other entities" who were "additional named in s u r e d s ." Industries was not mentioned by name until January 2006. Industries is correct that every correspondence from AISLIC contained la n g u a g e reserving its right to contest coverage so as to avoid waiver of that r ig h t . However, it is undisputed that AISLIC paid to defend Industries from c l a im s arising out of the chlorine gas leak. AISLIC argues that payment of d e fe n s e costs means that it "accepted coverage . . . for such claims" because the p o lic y defines the term "claim" as a demand alleging liability for a "loss under C o v e r a g e D-1 or D-2." Further under the policy, "Loss, as used in Coverages D-2 a n d D-2, means: . . . b. Costs, charges and expenses incurred in the defense, in v e s t ig a t io n or adjustment of claims." (emphasis added). Thus payment of d e fe n s e costs is payment of a claim under the terms of the policy.3 The district c o u r t accepted this argument. However, we need not decide whether providing a defense under a r e s e r v a tio n of rights under an eroding policy is equivalent to "accepting c o v e r a g e " to trigger exclusion u., because the record contains uncontradicted e v id e n c e that AISLIC provided indemnity coverage to Industries. Industries Coverage D under the primary policy (which was followed in form by the umbrella policy) contained this provision: "Defense costs, . . . reduce the applicable limit of insurance." Thus, unlike the typical comprehensive general liability policy where defense costs are excluded from the calculation of the policy limits, Coverage D was an eroding policy under which defense costs "count" against and "erode" the policy limits. See North American Specialty Lines Ins. Co. v. Royal Surplus Lines Ins. Co., 541 F.3d 552, 559 (5th Cir. 2008)("In many liability policies, the policy limits refer only to the indemnity obligation . . ., and the obligation to defend a liability suit is not capped by the policy limits. In an eroding policy . . the insurer's payments to defense counsel to defend the liability suit count against policy limits."). 9
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Date Filed: 08/24/2010

No. 09-20634 w a s named as a defendant in the Goodwin case as early as April 2004. The r e c o r d contains a Settlement Agreement and Release of Claims, dated S e p t e m b e r 2006, to which Industries is a released party. AISLIC paid $450,000 fo r this settlement. Industries argues that because the payments to claimants u n d e r this agreement were made by Enterprises and reimbursement from A I S L I C went to Enterprises, this does not constitute acceptance of coverage of I n d u s t r ie s as a separate entity. Industries cites no case law for this proposition. Qualification for "acceptance of coverage" does not depend on whether or how the s e t t le m e n t was apportioned between Enterprises and Industries and the other n a m e d defendants covered by the Settlement Agreement. Industries was a n a m e d defendant in the case and a released party to the Settlement Agreement o b ta in e d as a result of the insurer's payment. Industries clearly benefitted from t h e releases obtained in that agreement. Accordingly, the district court did not e r r in finding that AISLIC accepted coverage of Industries under Coverage D-2 o f the policy and thus Industries was precluded from coverage under any other p r o v is io n of the policy because of the anti-stacking provision in exclusion u. C O N C L U S IO N F o r the reasons stated above, we agree with the district court that AISLIC a c c e p t e d coverage under Coverage D 4 of the policy which triggered exclusion "u" p r e c lu d in g coverage under Coverage A.5 We therefore affirm the district court's ju d g m e n t. A F F IR M E D .

Having contracted for and paid a premium based upon both a lower total limit for Coverage D and an eroding policy, the insured cannot now rewrite the policy. See 541 F.3d at 559 ("[I]f the insured wanted a policy that had an unlimited defense obligation, rather than an eroding one, it should have contracted for such a policy.") As a result, we need not decide whether the pollution exclusion or professional services exclusion of Coverage A would bar coverage under that section. 10
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