Houston Specialty Insurance Company v. New Jax Condominiums Assoc., Inc. et al

Filing 35

ORDER AND REASONS regarding 22 Motion to Dismiss, or, in the alternative, for Summary Judgment - for the reasons stated, Houston Specialty has a duty to defend Jax Bar, and the question of whether Houston Specialty owes a duty to indemnify Jax Bar is premature.. Signed by Chief Judge Sarah S. Vance on 8/13/13. (jjs, )

Houston Specialty Insurance Company v. New Jax Condominiums Assoc., Inc. et al

Doc. 35

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
HOUSTON SPECIALTY INSURANCE
COMPANY

CIVIL ACTION

VERSUS

NO: 13-639

NEW JAX CONDOMINIUMS
ASSOCIATION INCORPORATED ET
AL.
ORDER AND REASONS

SECTION: R

Houston Specialty Insurance Company ("Houston Specialty")
moves for judgment on the pleadings, or, in the alternative,
summary judgment.1 For the following reasons, Houston Specialty
has a duty to defend Jax Bar, and the question of whether Houston
Specialty owes a duty to indemnify Jax Bar is premature.
I.

BACKGROUND
New Jax Condominium Association ("New Jax") filed a state

court lawsuit against 620 Decatur, LLC ("Jax Bar") claiming that
Jax Bar's music is too loud. Houston Specialty, Jax Bar's general
liability insurer, filed this action seeking a declaratory
judgment that it does not owe a duty to defend or indemnify Jax
Bar in the underlying suit.
Jax Bar operates a nightclub in New Jax's condominium
building at 620 Decatur Street.2 As with most nightclubs, Jax Bar

1

R. Doc. 22.

2

R. Doc. 1-2 at 4 (noting that Jax Bar owns condominium
unit 1-A).

Dockets.Justia.com

tends to play music at night. New Jax argues that Jax Bar has
been playing "illegal live and/or recorded amplified and
unamplified music and entertainment which is so offensive as to
deprive its neighbors of their peacable [sic] possession of their
property."3 New Jax alleges that this loud music is a nuisance
and a "noise trespass which unreasonably deprives Defendant's
neighbors of the peaceful enjoyment of their neighboring homes
and/or property."4 Further, New Jax alleges that Jax Bar "knew
and/or should have known that its uncontrolled presentation of
illegal music and entertainment would disturb the peace of the
Premises and cause damage to its neighbors."5
New Jax alleges that Jax Bar is acting in violation of
Louisiana statues because the noises emanating from the club are
"sufficient to cause physical discomfort and annoyance to
Association members and residents,"6 and constitutes a public and
civil nuisance. Jax Bar is also allegedly operating in violation
of New Orleans noise ordinances and the New Jax Condominium
Association agreement.7 New Jax seeks injunctive and declaratory
relief.

3

R. Doc. 22 at 4.

4

Id.

5

Id. at 4-5.

6

Id. at 5.

7

Id. at 6-8.
2

Houston Specialty seeks a declaration from this Court that
it does not have to defend or indemnify Jax Bar. It moves for a
judgment on the pleadings, or, in the alternative, for summary
judgment.
II.

JUDGMENT ON THE PLEADINGS
Plaintiff has moved for judgment on the pleadings under Fed.

R. Civ. P. 12(c). Judgment on the pleadings is appropriate if the
matter can be adjudicated by deciding questions of law rather
than factual disputes. Brittan Commc'ns Int'l Corp. v. Sw. Bell
Tel. Co., 313 F.3d 899, 904 (5th Cir. 2002). As it does when
deciding a motion to dismiss under Rule 12(b)(6), the Court must
consider the facts in a light most favorable to the non-moving
party and will accept as true the plausible factual allegations
in the non-moving party’s pleadings. Doe v. MySpace, Inc., 528
F.3d 413, 418 (5th Cir. 2008); see generally 5C Charles Alan
Wright & Arthur R. Miller, Federal Practice & Procedure: Civil §
1368 (3d ed.). In deciding this motion, the Court must look only
to the pleadings, Brittan Commc'ns, 313 F.3d at 904, which
includes exhibits attached to the pleadings. Great Plains Trust
Co. v. Morgan Stanley Dean Witter & Co., 313 F.3d 305, 313 (5th
Cir. 2002); Voest-Alpine Trading USA Corp. v. Bank of China, 142
F.3d 887, 891 n.4 (5th Cir. 1998). Houston Specialty's pleadings
attach the insurance policy and the underlying petition for

3

damages.8 These are the only documents relevant to Houston
Speciality's duty to defend. See Martco Ltd. P’ship v. Wellons,
Inc., 588 F.3d 864, 872 (5th Cir. 2009) (“Under Louisiana’s
‘Eight Corners Rule,’ we must assess whether there is a duty to
defend by applying the allegations of the complaint to the
underlying policy without resort to extrinsic evidence.”).
III. HOUSTON SPECIALTY HAS A DUTY TO DEFEND JAX BAR
An insurer’s duty to defend suits against its insured is
broader than its obligation to indemnify for damage claims. Hardy
v. Hartford Ins. Co., 236 F.3d 287, 290 (5th Cir. 2001); Suire v.
Lafayette City-Parish Consol. Gov’t, 907 So. 2d 37, 51-52 (La.
2005); Yount v. Maisano, 627 So. 2d 148, 153 (La. 1993). Under
Louisiana law, an insurer’s duty to defend is determined by
comparing the language of the insurance policy with the
allegations in the complaint. See Martco, 588 F.3d at 872; La.
Stadium & Exposition Dist. v. BFS Diversified Prods., LLC, 49 So.
3d 49, 51 (La. Ct. App. 2010) (“The duty to defend is determined
solely from the plaintiff’s pleadings and the face of the policy
without consideration of extraneous evidence.”). The insurer has
a duty to defend unless the allegations “unambiguously preclude
coverage.” Martco, 588 F.3d at 872 (citing Elliot v. Cont'l Cas.
Co., 949 So. 2d 1247, 1250 (La. 2007)). The duty to defend
“arises whenever the pleadings against the insured disclose a
8

R. Docs. 1-2, 1-3.
4

possibility of liability under the policy.” Id. at 872-73 (citing
Meloy v. Conoco, Inc., 504 So. 2d 833, 839 (La. 1987)). See also
Holzenthal v. Sewerage & Water Bd. of New Orleans, 950 So. 2d 55,
84 (La. Ct. App. 2007)(“An insurer must provide a defense to an
insured if, assuming all of the allegations to be true, there
would be both coverage under the policy and liability to the
plaintiff.”) (citing Am. Home Assur. Co. v. Czarniecki, 230 So.
2d 253, 259 (La. 1969)). “The allegations . . . must be liberally
interpreted in determining whether the claim falls within the
scope of the insurer’s duty to defend.” Hardy, 236 F.3d at 290
(citing Yount, 627 So. 2d at 153). Accordingly, the Court must
determine if the allegations in the complaint disclose a
possibility of liability under the policy.
A.

The Complaint Alleges a Set of Facts That Would Fall Within
Coverage
The insurance policy provides that it covers "bodily injury"

and "property damage" only if, among other things, the "bodily
injury" or "property damage" is caused by an "occurrence" that
takes place in the "coverage territory."9 Houston Specialty
argues that New Jax's petition does not allege an "occurrence,"
"bodily injury," or "property damage" as required by the policy.
Accordingly, it argues it has no duty to defend Jax Bar.
1.

9

New Jax's petition alleges property damage.

R. Doc. 1-3 at 14.
5

The insurance policy defines property damage, in pertinent
part, as follows:
a. Physical injury to or destruction of 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.10
New Jax alleges that members of the Association have been
deprived of "their peacable [sic] possession of their property"
and "the peaceful enjoyment of their neighboring homes and/or
property.11 By alleging that its members have lost peaceable
possession of their property, New Jax has alleged "loss of use of
tangible property that is not physically injured."12 Accordingly,
New Jax alleges property damage under the terms of the insurance
policy.
2.

New Jax's petition alleges bodily injury.

The policy defines "bodily injury" as "bodily injury,
sickness or disease sustained by a person, including death
resulting from any of these at any time."13 New Jax alleges that

10

R. Doc. 1-3 at 28.

11

R. Doc. 1-2 at 4.

12

R. Doc. 1-3 at 28.

13

Id. at 26.
6

Jax Bar has caused its members "physical discomfort."14 Houston
Specialty concedes that New Jax has alleged bodily injury as a
result of Jax Bar's actions and that nuisances may cause bodily
injury.15 Accordingly, New Jax has alleged bodily injury under
the insurance policy.
3. New Jax's petition alleges an occurrence.
Despite New Jax's allegations of property damage and bodily
injury, Houston Specialty argues that New Jax has failed to
allege an "occurrence" as required by the insurance policy. An
"occurrence" is defined as "an accident, including continuous or
repeated exposure to substantially the same general harmful
conditions."16 Although the policy does not define “accident,”
the Fifth Circuit has stated that “when the word ‘occurrence’ is
defined as an ‘accident’, the occurrence of an unforeseen and
unexpected loss constitutes an ‘accident’ and therefore an
‘occurrence.’” Freeport-McMoRan Energy v. Mullen, 233 F. App'x
341, 345 (5th Cir. 2007) (quoting N. Am. Treatment Sys., Inc. v.
Scottsdale Ins. Co., 943 So. 2d 429, 444 (La. Ct. App. 2006))
(internal quotation marks omitted); see also Adams v. Unione
Mediterranea Di Sicurta, 220 F.3d 659, 678 (5th Cir. 2000).

14

R. Doc. 1-2 at 5.

15

R. Doc. 22-1 at 9.

16

R. Doc. 1-3 at 27.
7

Under Louisiana law, courts interpret whether an event is an
"accident" from the viewpoint of the victim; losses that the
victim could not expect are the result of an accident. See, e.g.,
Freeport-McMoRan Energy, 233 F. App'x at 345; Jernigan v.
Allstate Ins. Co., 269 F.2d 353, 356-57 (5th Cir. 1959);
Tsolainos v. Tsolainos, 59 F. Supp. 2d 592, 596 (E.D. La. 1999);
N. Am. Treatment Sys., Inc., 943 So. 2d at 444; Gaylord Chem.
Corp. v. ProPump, Inc., 753 So. 2d 349, 354 (La. Ct. App. 2000)
("Accident is defined from the viewpoint of the victim."); see
also 15 William Shelby McKenzie and H. Alston Johnson III,
Louisiana Civil Law Treatise: Insurance Law and Practice § 6:7
(4th ed.).
The question, then, is whether the New Jax members expected
their alleged damages. While New Jax "was aware that Jax Bar was
operating a restaurant/nightclub" and was aware "that as a part
of its operation, Jax Bar would provide live and/or recorded
amplified and unamplified music and entertainment within the
applicable ordinances and zoning laws,"17 the damages New Jax
alleges are not due to the normal playing of music at Jax Bar.
Instead, New Jax's damages allegedly arise from Jax Bar playing
music at levels that violate local ordinances, state law, and the
condominium agreement. It is possible that New Jax's members did
not expect Jax Bar to play music so loud as to violate these laws
17

R. Doc. 34 at 11.
8

and to cause them damage. See, e.g., Estate of Patout v. City of
New Iberia, 849 So. 2d 535, 546 (La. Ct. App. 2002) (finding that
city’s continuous dumping of garbage on landowner's property
adjacent to landfill triggered coverage under city’s liability
policies). New Jax alleges that it entered into a condominium
agreement that "prohibits disturbing noises, and specifically
prohibits the playing of live and/or recorded music between the
hours of 11:00 p.m. and 8:00 a.m."18 Seemingly, New Jax would not
have entered into this agreement had the members expected Jax Bar
to disregard its terms and cause them damage. Accordingly,
because the New Jax members possibly could not anticipate that
Jax Bar would play music so loud as to injure them, the complaint
alleges facts that would fall within coverage.
Finally, Houston Specialty relies on cases that discuss
policies that define "occurrence" differently than the policy in
this case. See, e.g., Williams v. City of Baton Rouge, 731 So. 2d
240, 252 (La. 1999). Specifically, Houston Specialty's definition
of "occurrence" does not include the language excluding injuries
expected from the viewpoint of the insured.19 For this reason,

18

R. Doc. 22-4 at 8.

19

It is true that the policy provides for an "Expected or
Intended Injury" exclusion, which excludes "'Bodily injury' or
'property damage' expected or intended from the standpoint of the
insured." R. Doc. 1-3 at 15 (emphasis added). Houston Specialty
does not invoke this exclusion in its briefs and discusses only
whether there is an "occurrence" under the policy. To the extent
that Houston Specialty adverts to the language of this exclusion,
9

the cases cited by Houston Specialty are inapposite. As the

this offers no help.
The allegations in the complaint do not suggest that Jax Bar
desired to cause New Jax harm. New Jax alleges that Jax Bar "knew
and/or should have known that its uncontrolled presentation of
illegal music and entertainment would . . . cause damage to its
neighbors." R. Doc. 1-2 at 5. There are no allegations that Jax
Bar desired to harm New Jax.
Nor do the allegations of the complaint support the
conclusion that Jax Bar believed that New Jax's harms were
substantially certain to occur. If, as alleged, Jax Bar "should
have known" about the damage to New Jax, R. Doc. 1-2 at 5, then
it is possible that Jax Bar did not know, and therefore did not
"believe that the results were substantially certain to occur."
Williams, 731 So. 2d at 253. Compare Pique v. Saia, 450 So. 2d
654, 655-56 (La. 1984) (intended injury exclusion did not apply
when insured pushed a police officer during a struggle, but "did
not desire or know to a substantial certainty that his particular
act of pushing away from the fence would result in injury to the
plaintiff"), and Williamson v. Historic Hurstville Ass'n, 556 So.
2d 103, 108 (La. Ct. App. 1990), and Sherwood v. Sepulvado, 362
So. 2d 1161, 1163-64 (La Ct. App. 1978) (exclusion did not apply
when insured pushed a person but did not intend to harm her
because "[w]hen the act is intentional, but the injury is not,
the exclusionary clause is not applicable"), with Williams, 731
So. 2d at 254 (insured's excavation of the injured party's
property was excluded because the insured "knew that the property
damage would occur" when it excavated "large ditches with heavy
construction equipment through private property without the
landowner's consent continuously over a two month period"), and
Yount, 627 So. 2d at 153 (exclusion applies when insured commits
"a battery on another individual, repeatedly strikes him in the
face with both fists, and kicks him repeatedly in the face"). New
Jax's allegations therefore leave open the possibility that Jax
Bar did not desire to harm New Jax and that Jax Bar did not
believe that New Jax's injuries were substantially certain to
result.
Further, Jax Bar could reasonably expect its insurer to
cover the alleged damages in this case. Because the allegations
in the complaint do not suggest that Jax Bar intended any injury,
it is reasonable for Jax Bar to expect coverage for any damage it
unintentionally causes to third-parties. Accordingly, the
Expected or Intended Injury exclusion does not aid Houston
Specialty.
10

foregoing analysis makes clear, Houston Specialty has a duty to
defend.
IV.

A DECLARATION ON HOUSTON SPECIALITY'S DUTY TO INDEMNIFY IS
PREMATURE
Houston Speciality also seeks a declaration that it owes no

duty to indemnify Jax Bar.20 In determining an insurer's duty to
indemnify, the Court is not limited to the allegations in the
complaint, but rather “must apply the Policy to the actual
evidence adduced at the underlying liability trial together with
any evidence introduced in the coverage case.” Martco, 588 F.3d
at 877. Although the interpretation of an insurance contract
presents a question of law rather than of fact, the Court must
apply the policy to the evidence presented to determine whether
there is coverage under the insuring clause and whether a policy
exclusion applies. See id. at 878–84 (applying Louisiana law to
determine whether “[a] review of the evidence adduced at trial,
the resulting verdict and judgment, and the applicable Louisiana
law reveals that [the insured] clearly carried its burden of
establishing coverage under the insuring clause”); Meloy, 504 So.
2d 833 at 839 (liability “can only be determined after trial on
the merits”). Accordingly, while a duty to defend is justiciable
before the underlying issue of liability is resolved, the duty of
indemnity is generally not. See Coregis Ins. Co. v. School Bd. Of

20

R. Doc. 1 at 8.
11

Allen Parish, No. 07-30844, 2008 WL 2325632, at *2-3 (5th Cir.
June 6, 2008). Because liability in the underlying case has not
yet been determined, the Court will not issue a declaratory
judgment on Houston Specialty's duty to indemnify Jax Bar.
V.

CONCLUSION
For the above stated reasons, Houston Specialty has a duty

to defend Jax Bar, and the question of whether Houston Specialty
owes a duty to indemnify Jax Bar is premature.

New Orleans, Louisiana, this 13th day of August, 2013.
__

_________________________________
SARAH S. VANCE
UNITED STATES DISTRICT JUDGE

12