Colony National Insurance Company v. United Fire & Casualty Company

Filing 49

ORDER ADOPTING REPORT AND RECOMMENDATIONS Granting 36 MOTION for Summary Judgment filed by Colony National Insurance Company, and FURTHER ORDERED that 37 MOTION for Summary Judgment filed by United Fire & Casualty Company is Denied.. Signed by Judge Rodney Gilstrap on 3/30/2016. (sm, )

IN THE UNITED STATES DISTRICT COURT
OF THE EASTERN DISTRICT OF TEXAS
TEXARKANA DIVISION
COLONY NATIONAL INSURANCE
COMPANY
V.
UNITED FIRE & CASUALTY
COMPANY

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No. 5:14CV10-JRG-CMC

MEMORANDUM ORDER
The above-entitled and numbered civil action was heretofore referred to United States
Magistrate Judge Caroline M. Craven pursuant to 28 U.S.C. § 636. The Report of the Magistrate
Judge which contains her proposed findings of fact and recommendations for the disposition of such
action has been presented for consideration. Defendant United Fire & Casualty Company (“United”)
filed objections to the Report and Recommendation. Plaintiff Colony National Insurance Company
(“Colony”) filed a response to the objections. The Court conducted a de novo review of the
Magistrate Judge’s findings and conclusions.
BACKGROUND
This is an insurance coverage dispute. Colony seeks a declaration regarding United’s duty
to defend Carothers Construction, Inc. (“Carothers”) in a lawsuit styled Gordon Ray Bonner v. Joyce
Steel Erection, Ltd., Cause No. 11C0822.202 in the 202nd District Court of Bowie County, Texas
(the “underlying suit”). Carothers was the general contractor on a Red River Army Depot project
near Texarkana, Texas. During the construction of the project, Carothers utilized subcontractor Self
Concrete, LLC (“Self Concrete”) to pour and form concrete tilt wall panels and subcontractor
Premier Constructors, Inc. (“Premier”) to perform steel erection work at the construction site. During

the course of the construction, one of Premier’s workers, Ray Bonner, was injured when one of Self
Concrete’s tilt walls was being hoisted into place. According to Bonner, the panel swung out in an
uncontrolled manner and pinned Bonner against a retaining wall. In the underlying suit, Bonner sued
Carothers and Self Concrete (and Joyce Steel Erection, Ltd.).
United insured Self Concrete. Colony insured Bonner’s employer, Premier. Carothers was
an additional insured on both policies. Carothers tendered its defense to both United and Colony.
Colony accepted the tender and provided a defense to Carothers. United declined.
In this case, Colony asserts breach of contract claims, including claims for subrogation and
contribution, against United for its refusal to defend Carothers in the underlying suit. Colony
requests the Court construe the Colony and United policies and declare that United is required to
share Carothers’ defense costs and fees equally with Colony. Colony seeks a judgment awarding
Colony one-half of it its costs and fees in the underlying suit and ordering United to reimburse
Colony for the attorney’s fees that it has incurred prosecuting this suit based on the Texas Practice
& Remedies Code § 38.001 and/or Texas Insurance Code §§ 541 and 542.
United does not dispute Carothers is an additional insured during the relevant time period.
However, it asserts it did not owe Carothers a defense because Bonner did not allege facts in the
underlying suit sufficient to impute any liability of Self Concrete to Carothers as required under the
United policy. United also asserts Colony has waived its right of subrogation and recovery.
The parties filed cross motions for summary judgment.
REPORT AND RECOMMENDATION
In her Report and Recommendation dated March 2, 2016, the Magistrate Judge recommended
Colony’s motion for summary judgment be granted and United’s motion for summary judgment be
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denied. Specifically, the Magistrate Judge concluded Self Concrete was contractually obligated to
provide insurance coverage to Carothers as an additional insured on its commercial general liability
policy with United. According to the Magistrate Judge, the allegations in the underlying suit
implicate Self Concrete, which triggers coverage for Carothers under the Self Concrete policy with
United. The Magistrate Judge further found Colony, by its policy terms, did not waive any
subrogation claims it has against United for Carothers’ defense costs. Thus, the Magistrate Judge
concluded United is responsible for one half of Carothers’ defense costs, and Colony is entitled to
recover $250,159.38, plus pre and post judgment interest, from United.
The Magistrate Judge did not make a recommendation as to whether Colony is entitled to
recover attorney’s fees, and if so, for what amount. Instead, the Magistrate Judge ordered Colony
to file a separate motion for attorney’s fees, setting forth its arguments pursuant to TEX. CIV. PRAC.
& REM. CODE § 38.001, et seq., as well as the current amount of attorney’s fees incurred in this suit
to date. On March 16, 2016, Colony filed its Motion for Award of Attorneys’ Fees (Dkt. No. 45).
The Court will issue a separate order on that motion once it is ripe.
UNITED’S OBJECTIONS
United filed objections to the Magistrate Judge’s Report and Recommendation, asserting in
a nutshell as follows: (1) the underlying allegations do not state facts potentially bringing the claim
against Carothers within the scope of coverage furnished by United’s additional insured
endorsement; (2) the additional insured coverage furnished to Carothers by United is excess to the
additional insured coverage furnished to Carothers by Colony; and (3) a waiver of subrogation
provision in Colony’s policy eliminates Colony’s right to recover from United. In response, Colony
asserts the Magistrate Judge did a thorough job of analyzing and rejecting each of these arguments.
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DE NOVO REVIEW
This is a duty to defend case, not an indemnity case. Under the eight corners or complaint
allegation rule, an insurer’s duty to defend is determined by the plaintiff’s pleadings, considered in
light of the policy provisions, without regard to the truth or falsity of the allegations. GuideOne Elite
Ins. Co. v. Fielder Road Baptist Church, 197 S.W.3d 305, 308 (Tex. 2006). Courts applying the
eight corners rule “give the allegations in the petition a liberal interpretation.” Nat’l Union Fire Ins.
Co. of Pittsburgh, Pa. v. Merchants Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex.1997). If
there is any doubt, there is a duty to defend. Gore Design Completions, Ltd. v. Harford Fire Ins. Co.,
538 F.3d 365 (5th Cir. 2008).
United’s first objection basically concerns the Magistrate Judge’s agreement with Colony it
was “entirely possible” that there is a “chance” Self Concrete’s acts may be imputed to Carothers
under the allegations in the underlying suit. (Report and Recommendation at 27). Stated differently,
the Magistrate Judge found the allegations in the underlying suit do not “clearly and unambiguously
fall outside the scope” of the United policy’s coverage. Id. (citing Trinity Universal Co. Ins. v.
Employers Mutual Casualty Co., 592 F.3d 687, 693 (5th Cir.2010)). According to United, the
Magistrate Judge improperly shifted the burden of proof to United contrary to the Fifth Circuit’s
opinion in Gilbane Bldg. Co. v. Admiral Ins. Co., 664 FF.3d 589 (5th Cir. 2011). Colony argues this
“weak argument confuses duty to defend issues with liability issues, and ignores the obvious
difference between this case and Gilbane.” (Dkt. No. 46 at 4).
In Gilbane, general contractor Gilbane sought defense and indemnification from Admiral
Insurance Company based on a commercial general liability policy Admiral had issued to Empire
Steel Erectors, a subcontractor. The district court found Admiral owed a duty to defend and
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indemnify. Gilbane, 664 F.3d at 592. The policy provided coverage to additional insureds for their
own or their agents’ acts or omissions, “so long as Empire Steel had previously assumed the liability
of the potential additional insured in a written contract.” Id. at 593. Having determined Gilbane
qualified as an additional insured, the Fifth Circuit considered whether the pleadings in the
underlying suit sufficiently alleged that Empire, or someone acting on its behalf, caused the injuries
of Empire’s employee Parr. Id. at 596.
The policy at issue in Gilbane explicitly required that the injuries “be caused, in whole or in
part, by” Empire. Id. at 598. As such, Admiral owed Gilbane a duty to defend only if the underlying
pleadings alleged that Empire, or someone acting on its behalf, proximately caused Parr’s injuries.
Id. The Fifth Circuit reversed the district court, finding Admiral had no duty to defend additional
insured Gilbane because the “allegations in the pleadings [did] not implicate” the fault of the insured
Empire. Id. at 599.
According to the Fifth Circuit, in performing its eight-corners review, “a court may not read
facts into the pleadings, look outside the pleadings, or speculate as to factual scenarios that might
trigger coverage or create ambiguity.” Id. at 596-97. In concluding the district court had imagined
factual scenarios that could give rise to coverage,1 the Fifth Circuit noted the district court had
essentially shifted the burden of proof to the party disputing coverage to show that the pleadings did
not support a covered claim. Id. at 599. The Fifth Circuit held the district court should only have
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In deciding that Admiral had a duty to defend, the district court characterized the petition
as stating “the injuries occurred when Parr was walking down the ladder with muddy boots,” which
it considered sufficient to implicate Parr’s contributory negligence. Gilbane, 664 F.3d at 598.
According to the Fifth Circuit, the petition did not allege that Parr climbed down the ladder with
“muddy boots.” Rather, it alleged that Gilbane’s negligence caused the work area to become
“slippery and hazardous,” causing Parr’s injuries. Id.
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considered whether the facts pleaded affirmatively implicated Parr’s or Empire’s negligence. Id. The
Fifth Circuit concluded the petition did not affirmatively allege any facts suggesting that Parr’s or
Empire’s negligence caused his injuries; thus, Admiral had no duty to defend. Id.
Here, the Magistrate Judge did not improperly shift the burden of proof to United to establish
the allegations did not support a covered claim. Rather, she properly referenced the potentiality
standard used in Zurich Am. Ins. v. Nokia, Inc., 268 S.W.3d 487, 490 (Tex.2008) to “characterize
the description of claims in the petition, determining whether they potentially were covered.”
Gilbane, 664 F.3d at 599. United argues the Magistrate Judge assumed facts not stated within the
pleadings, namely facts regarding “Carothers’ exercised control over the operative details of Self
Concrete’s work sufficient to impute liability.” (Dkt. No. 43 at 8-9). According to United, Texas law
requires that a general contractor of an independent contractor can only become liable for an
independent contractor’s actions if the general contractor “controls the detail or methods of the
independent contractor’s work to such an extent that the contractor cannot perform the work as it
chooses.” See Fifth Club, Inc. v. Ramirez, 196 S.W.3d 788, 791-92 (Tex.2006).
United’s policy required it to provide a defense to its additional insured, Carothers, for “[Self
Concrete’s] liability which may be imputed to [Carothers] directly arising out of [Self Concrete’s]
ongoing operations.” AR 0040. The facts affirmatively alleged in the underlying suit are as follows.
Carothers hired Self Concrete to form, pour, and prepare the concrete tilt panels for the project, and
Carothers maintained control over the work site and provided the plans for the tilt panel forming to
Self Concrete. AR 0250-51. Self Concrete had a duty to follow Carothers’ plans in connection with
the tilt panels, including a duty to inspect and make sure the panels worked to the contractor’s
specifications and were properly prepared. AR 0251. Bonner further alleged Carothers owed him a
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duty to ensure he had a safe place to work, and Carothers breached that duty by failing to ensure
subcontractor compliance with applicable plans and regulations. AR 0293.
Alternatively, Bonner alleged Carothers, as the controlling employer, had general supervisory
authority over the work site, including the power to correct or require others onsite to correct safety
hazards that existed there. Bonner alleged Carothers breached its duty to exercise reasonable care
to detect any unsafe conditions and was negligent in failing to perform its work as a reasonable and
prudent prime contractor. AR 0293-94. Bonner specifically alleged Self Concrete was required by
contract with Carothers to clean the job site area and that it breached that duty. AR 0294. He alleged
Self Concrete was negligent in failing to remove its form work and materials prior to the lift in
question, and that Carothers was negligent in failing to have in place proper policies and procedures
for cleaning and inspecting the job site and following safety guidelines. AR 0258-59.
The Magistrate Judge did not improperly read facts into the pleadings or imagine factual
scenarios which might trigger coverage. She found the allegations in Bonner’s underlying suit, when
liberally interpreted and taken as true, allege the requisite degree of control. The Court agrees with
the Magistrate Judge.
In Indian Harbor Ins. v. Valley Forge Ins. Group, 535 F.3d 359 (5th Cir.2008), El Naggar
had hired a general contractor (Traxel) to construct a building on his property. Id. at 361. Traxel
hired American Steel to erect a prefabricated steel building at the site. Id. American Steel hired
Arrow Trucking to deliver the steel for the building to the job site, and the general contractor
separately hired Coastal to construct the concrete slab for the building. Id. El Naggar sued Traxel,
American Steel, Arrow Trucking, and Coastal, contending the concrete slab was defective and
caused significant damage to the building. Id.
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Indian Harbor insured Coastal under a general liability policy. Id. at 362. It provided Coastal
a defense and also shared in the defense of Traxel, which Indian Harbor considered an additional
insured under its policy covering Coastal. Id. Valley Forge insured American Steel and Liberty
Mutual insured Arrow Trucking- both under business automobile insurance policies which provided
“any party that is liable for the conduct of the named insured is also covered as an insured, but only
to the extent of that liability.” Id. Indian Harbor sued the other two insurance companies asserting
Traxel and Coastal were owed a duty to defend under the policies issued to American Steel and
Arrow Trucking “because El Naggar’s complaint included facts sufficient to support a claim that
Coastal and Traxel were vicariously liable for the conduct of American Steel and Arrow Trucking.”
Id.
El Naggar alleged that Traxel was “to have supervised, scheduled, and organized all
contractors and subcontractors” and was contractually obligated “to supervise the delivery of
American/Vulcan’s steel to the site” but failed to do so by “permitting heavy material to be brought
upon an uncured concrete slab.” Id. at 364. The Fifth Circuit held the alleged conduct was typical
of the activities and functions of a general contractor and did not “rise to the degree of control that
would cause subcontractors to be agents of a general contractor for purposes of tort liability.” Id.
Importantly, none of the allegations indicated that Traxel instructed American Steel or Arrow
Trucking as to the method is was to utilize in erecting the steel structure. Id. at 365.
In Bonner’s Third Amended Original Petition relied upon by United, Bonner alleges
Carothers maintained control over the worksite and provided the plans for the tilt-up panel forming
to Self Concrete. AR 0250-51. This allegation indicates that Carothers provided the plan or method
Self Concrete was to utilize in forming the tilt panels, thus indicating a degree of control sufficient
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to support imputed liability. The Court finds United’s first objection without merit.
United’s remaining objections rehash the arguments raised before the Magistrate Judge.
United’s objections are without merit. The Court is of the opinion that the findings and conclusions
of the Magistrate Judge are correct. Therefore, the Court hereby adopts the Report of the United
States Magistrate Judge as the findings and conclusions of this Court. Accordingly, it is hereby
ORDERED that Colony’s Motion for Summary Judgment (Dkt. No. 36) is GRANTED. It
is further
ORDERED that Defendant United Fire & Casualty Company’s Motion for Summary
Judgment (Dkt. No. 37) is DENIED.

So Ordered this
Mar 30, 2016

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