Mt. Hawley v. Huser

Filing 19

MEMORANDUM OPINION AND ORDER granting 8 MOTION for Summary Judgment and Brief in Support, denying 9 Cross-Motion on Duty to Defend. (Signed by Judge Sim Lake) Parties notified. (aboyd, 4)

United States District Court
Southern District of Texas

ENTERED
March 19, 2019

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION

MT. HAWLEY INSURANCE COMPANY,

David J. Bradley, Clerk

§
§
§
§

Plaintiff,
v.

CIVIL ACTION NO. H-18-0787

§
§
§
§
§
§

HUSER CONSTRUCTION COMPANY,
INC.
I

Defendant.

MEMORANDUM OPINION AND ORDER

Plaintiff
"Plaintiff")

Mt.

Hawley

sued

Insurance

defendant

Huser

Company

( "Mt.

Construction

Hawley"

Company,

or
Inc.

("Huser" or "Defendant") seeking a declaration that Mt. Hawley did
not owe Huser a duty to defend in a lawsuit brought against Huser. 1
Huser answered and pled counterclaims for breach of contract and
violations
Pending

before

Company's
Alternative
( "Mt.

of

Texas

the

Motion
Motion

Hawley's

1

the

court

for
for

Motion")

Insurance
are

Judgment

Code

Plaintiff
on

the

Summary Judgment
(Docket

against
Mt.

Hawley

Hawley. 2
Insurance

Pleadings

or

and

in Support

Entry No.

8)

See
Complaint
for
Declaratory Relief
Complaint"), Docket Entry No. 1, p. 7 ~ 24.
2

Mt.

Brief

in

the

and Defendant's

("Mt.

Hawley's

See Huser's Answer and Counterclaims to Mt. Hawley's
Complaint for Declaratory Relief ("Huser's Answer"), Docket Entry
No. 6.

Response to Mt.
Motion

on

the

Hawley's Motion for Summary Judgment and Cross
Duty

to

Defend

Response and Cross Motion").

(Docket

Entry No.

9)

("Huser's

For the reasons stated below, Mt.

Hawley's Motion will be granted and Huser's Cross Motion will be
denied.
I.
A.

Case Background

Insurance Policy

Huser purchased Commercial General Liability ( "CGL") Insurance
Policies

(the

"Mt.

Hawley

Policies")

and

Commercial

Excess

Liability Insurance Policies from Mt. Hawley to cover the period
from December 31, 2014, through January 1, 2019. 3
Policies

contained

occurrence,

and

a

a

$1,000,000

$2,000,000

limit

general

of

The Mt. Hawley

liability

aggregate

for

limit

each
and

$2, 000, 000 products-completed operations aggregate limit. 4
terms

of

each

of

the

substantially similar. 5

Mt.
The

Hawley
Mt.

Policies

Hawley

are

Policies

the

same

a

The
or

imposed upon

Mt. Hawley a duty to defend against certain claims brought against
Huser. 6

3

See Mt. Hawley's Complaint, Docket Entry No. 1, p. 4.

4

See Mt. Hawley Policies, Exhibits
Complaint, Docket Entry Nos. 1-2 to 1-5.
5

2-5

to

Mt.

Hawley's

See Mt. Hawley's Complaint, Docket Entry No. 1, p. 5.

6

See, e.g., Commercial General Liability Policy No. MGL0174186,
Exhibit 2 to Mt. Hawley's Complaint, Docket Entry No. 1-2, p. 4.
-2-

1.

Duty to Defend

The Mt. Hawley Policies contain a duty to defend provision,
which states:
SECTION 1-COVERAGES
COVERAGE A-BODILY INJURY AND PROPERTY DAMAGE LIABILITY
1.

Insuring Agreement

a.

We will pay those sums that the insured
becomes legally obligated to pay as damages
because of
"bodily injury" or "property
damage" to which this insurance applies.
We
will have the right and duty to defend the
insured against any "suit" seeking those
damages.
However, we will have no duty to
defend the insured against any "suit" seeking
damages for "bodily injury" or "property
damage" to which this insurance does not
apply. We may, at our discretion, investigate
any "occurrence" and settle any claim or
"suit" that may result. But:
the amount we will pay for damages is
limited as described in Section III - Limits
of Insurance; and
(1)

(2)
Our right and duty to defend ends when we
have used up the applicable limit of insurance
in the payment of judgments or settlements
under Coverages A or B or medical expenses
under Coverage C.

No other obligation or liability to pay sums or
perform acts or services
is covered unless
explicitly
provided
for
under
Supplementary
Payments- Coverages A and B. 7
The Mt. Hawley Policies define "property damage" as:
a.

7

Physical
injury
to
tangible
property,
including all resulting loss of use of that
property.
All such loss of use shall be

See, e.g., id.
-3-

deemed to occur at the time of the physical
injury that caused it; or
b.

The

Mt.

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. 8

Hawley

Policies

define

"occurrence"

as

"an

accident,

including continuous or repeated exposure to substantially the same
general

harmful

conditions." 9

The

Mt.

Hawley

Policies

define

"suit" as "a civil proceeding in which damages because of 'bodily
injury,'

'property damage' or 'personal and advertising injury' to

which this insurance applies are alleged." 10
2.

Relevant Exclusions

In support of its Motion, Mt. Hawley argues that it does not
have

a

duty

to

defend

Huser

because

the

Breach

of

Contract

Exclusion contained as an endorsement on each of the Mt. Hawley
Policies excludes coverage:
BREACH OF CONTRACT EXCLUSION

This insurance does not apply, nor do we have a duty to
defend any claim or "suit" for "bodily injury," "property
damage," or "personal and advertising injury" arising
directly or indirectly out of the following:
a.

Breach of express or implied contract;

b.

Breach of express or implied warranty;

8

See, e.g., id. at 19 ~ 17.

9

See, e.g., id. at 18 ~ 13.

10

See, e.g., id. at 19 ~ 18.
-4-

c.

Fraud or misrepresentation regarding the formation,
terms or performance of a contracti or

d.

Libel, slander or defamation arising
within the contractual relationship. 11

Huser argues

that

the

separate

"Your Work"

out

of

or

Exclusion and

the

subcontractor exception contained within it preserve coverage for
property damage caused by subcontractors:
1.

Damage to Your Work

"Property damage" to "your work" arising out of it
or any part of it and included in the "productscompleted operations hazard"
[is excluded from
coverage] .
This exclusion does not apply if the damaged work
or the work out of which the damage arises was
performed on your behalf by a subcontractor. 12
Pertinent to this exclusion,

"[y] our work"

is

defined as both

"(1)

[w]ork or operations performed by you or on your behalfi and

(2)

[m]aterials, parts or equipment furnished in connection with

such work or operations." 13
B.

The EHP v. Huser Lawsuit (the "Underlying Action")

Huser agreed to act as a general contractor for Eagle Heights
Pleasanton,

LLC

( "EHP")

to

construct

Pleasanton, Texas (the "EHP Project") . 14

an

apartment

complex

in

The Underlying Action is

11

See, e.g., id. at 52.

12

See, e.g., id. at 8 (emphasis added).

13

See, e.g., id. at 20

14

See Huser's Response and Cross Motion, Docket Entry No. 9,

~

22.

p. 8.
-5-

a dispute between EHP and Huser over alleged construction defects
in the EHP Project.

Huser's contract with EHP provided that:

ARTICLE 3 RELATIONSHIP OF THE PARTIES
The Contractor [Huser] accepts the relationship of trust
and confidence established by this Agreement and
covenants with the Owner [EHP] to cooperate with the
Architect and exercise the Contractor's skill and
judgment in furthering the interests of the Owner; to
furnish
efficient
business
administration
and
supervision; to furnish at all times an adequate supply
of workers and materials; and to perform the Work in an
expeditious and economical manner consistent with the
Owner's interests.
The Owner agrees to furnish and
approve, in a timely manner, information required by the
Contractor and to make payments to the Contractor in
accordance with the requirements of the Contract
Documents.
* * *
ARTICLE 7
§ 7.3

COSTS TO BE REIMBURSED

SUBCONTRACT COSTS
* * *

§ 7.3.3 Owner's approval of subcontracts shall not create
any liability for the Owner or Contractor in any way and
shall not be unreasonably withheld.

* * *
§ 7. 7. 3
Costs of repairing or correcting damaged or
nonconforming
Work
executed
by
the
Contractor,
Subcontractors or suppliers, provided that such damaged
or nonconforming Work was not caused by negligence or
failure to fulfill a specific responsibility of the
Contractor and only to the extent that the cost of repair
or correction is not recovered by the Contractor from
insurance,
sureties,
Subcontractors,
suppliers,
or
others.

* * *
ARTICLE 10

SUBCONTRACTS AND OTHER AGREEMENTS

§ 10.1
Those portions of the Work that the Contractor
does not customarily perform with the Contractor's own
-6-

personnel shall be performed under subcontracts or by
15
other appropriate agreements with the Contractor.
In

connection

with

subcontractors.

the

EHP

Project,

Huser

hired

several

One of those subcontractors was Schaffer, which

was responsible for designing and installing the HVAC system. 16
EHP alleges that after Huser completed work on the EHP Project
in

2016

and

EHP

took

possession,

EHP

discovered

multiple

deficiencies in the workmanship and materials used in the Project.
EHP

claims

that

work

performed

by

Schaffer

was

deficient

in

multiple respects, including:

(1) breaching a fire wall; (2) using

the wrong type of ducts;

misplacing air vents;

trash

in

the

air

ducts;

( 3)
( 5)

improperly

installing

( 4)

leaving

electrical

connections to the HVAC; and (6) using poorer quality units than
those specified by the job architect. 17
EHP filed the Underlying Action against Huser and Schaffer on
February

13 ,

2018,

in

the

80th

Civil

District

Harris County, Texas, under Cause No. 2018-09694. 18

Court

of

The Underlying

Action alleged the following causes of action against Huser:

15

See Standard Form of Agreement Between Owner and Contractor
EHP and Huser ("EHP Contract") [Attached to Plaintiff's Original
Petition and Jury Demand ( "EHP' s Petition") in the Underlying
Action], Exhibit 1 to Mt. Hawley's Complaint, Docket Entry No. 1-1,
pp. 10-16.
16

See Huser's Response and Cross Motion, Docket Entry No. 9,

17

Hawley's Complaint,

p. 8.

See EHP' s Petition, Exhibit 1 to Mt.
Docket Entry No. 1-1, pp. 5-6.
18

See id. at 1.
-7-

HUSER'S BREACH OF CONTRACT AND NEGLIGENCE

11. HUSER contracted to build the project in a good
and workmanlike manner using materials and design
information set forth by the job architect
(see
Exhibit "1 11 ) . HUSER 1 in many respects/ failed to do so.
HUSER also agreed to staff the job with subcontractors
who were knowledgeable in their respective trades and
agreed to supervise the work that was being done by those
contractors to make certain that their work was being
done in accordance with plans and specifications and in
a good and workmanlike manner.
The property has been
plagued with electrical problems/ roofing problems/
plumbing problems foundation problems and HVAC problems
and deficiencies. Materials that were specified were not
used.
Insulation is missing.
Drier vents were
improperly installed.
Water fountains are improperly
attached to the walls and 1 in fact 1 one has fallen off
the wall because it was not properly affixed. The ridge
vents on the roof were installed improperly.
Plumbing
was installed improperly using inferior materials that
were not specified in the plans.
Bathrooms were
improperly vented into the attic and at least one
instance a toilet was plumbed with hot/ not cold water.
These items are just a sampling of the incidents which
show the manner in which HUSER has breached its contract
or in the alternative 1 has negligently supervised and
staffed the project in question all proximately causing
damages or producing damages which have far exceeded the
minimum jurisdictional limits of this Court. 19
1

1

1

EHP 1

s

Petition in the

Underlying Action also

causes of action against Schaffer. 20

alleged separate

After Huser was served by

EHP 1

Huser timely placed Mt. Hawley on notice of the claim. 21
C.

This Action

Mt. Hawley refused to defend Huser in the Underlying Action.
Mt.

Hawley

filed

this

19

See Huser

March

13

1

2018

1

seeking

a

See id. at 5-6.

21

on

See id. at 4-5.

20

action

1

S

Response and Cross Motion/ Docket Entry No. 9

p. 9.
-8-

1

declaration that it had no duty to defend Huser in the Underlying
Action. 22

2018. 23

Mt. Hawley filed its pending Motion on June 8,

Huser filed its Response and Cross Motion on June 29, 2018. 24

Both

parties have filed responses and replies to each pending motion. 25
The pending motions address Mt. Hawley's duty to defend and duty to
indemnify

Huser,

as

well

as

Huser's

counterclaims

against

Mt. Hawley.
II.
A.

Standard of Review

Motion for Judgment on the Pleadings

A motion brought pursuant to Federal Rule of Civil Procedure
12(c) should be granted if there is no issue of material fact and
if the pleadings show that the moving party is entitled to judgment
as a matter of law.
478 F.2d 254, 256

Greenberg v. General Mills Fun Group,

(5th Cir. 1973).

Inc.,

A motion for judgment on the

pleadings is subject to the same standard as a motion to dismiss
for failure to state a claim.
Co.

LLC,

624 F.3d 201,

209

See In re Great Lakes Dredge & Dock
(5th Cir.

2010);

Guidry v. American

22

See Mt. Hawley's Complaint, Docket Entry No. 1.

23

See Mt. Hawley's Motion, Docket Entry No. 8.

24

See Huser's Response and Cross Motion, Docket Entry No. 9.

25

See Huser's Response and Cross Motion, Docket Entry No. 9;
Plaintiff Mt. Hawley Insurance Company's Response to Cross Motion
on the Duty to Defend, Docket Entry No. 11; Plaintiff Mt. Hawley
Insurance Company's Reply in Support of Motion for Judgment on the
Pleadings or in the Alternative Motion for Summary Judgment, Docket
Entry No. 13; Huser's Reply in Support of its Cross Motion for
Summary Judgment on the Duty to Defend, Docket Entry No. 15.
-9-

Public Life Insurance Co.,

512

F.3d 177,

180

(5th Cir.

2007).

Thus, "the central issue is whether, in the light most favorable to
the plaintiff,

the complaint states a valid claim for relief."

Great Plains Trust Co. v. Morgan Stanley Dean Witter & Co.,
F.3d 305, 312 (5th Cir. 2002)
B.

313

(internal quotations omitted).

Motion for Summary Judgment

Summary judgment is authorized if the movant establishes that
there is no genuine dispute about any material fact and the law
entitles it to judgment.

Fed. R. Civ. P. 56(c).

Disputes about

any material facts are "genuine" if the evidence is such that a
reasonable jury could return a verdict for the nonmoving party.
Anderson v. Liberty Lobby, Inc., 106 S. Ct. 2505, 2511 (1986).
reviewing

the

evidence

"the

court

must

draw

inferences in favor of the nonmoving party,
credibility determinations

or weigh the

Sanderson Plumbing Products,

all

In

reasonable

and it may not make

evidence."

Reeves

Inc., 120 S. Ct. 2097, 2110

v.

(2000).

Factual controversies are to be resolved in favor of the nonmovant,
"but only when

both parties have

contradictory facts."

Little v. Liquid Air Corp., 37 F.3d 1069,

1075 (5th Cir. 1994)

submitted evidence of

(en bane)

Cross-motions for summary judgment are evaluated separately.
See Shaw Constructors v. ICF Kaiser Engineers, Inc., 395 F.3d 533,
538-39 (5th Cir. 2004).

Each movant must establish that no genuine

issue of material fact exists and that it is entitled to judgment
-10-

as a matter of law, and the court views the evidence in favor of
each nonmovant.

See id.; Tidewater Inc. v. United States, 565 F. 3d

299, 302 (5th Cir. 2009)

(citing Ford Motor Co. v. Texas Department

of Transportation, 264 F.3d 493, 499 (5th Cir. 2001)).
III.
A.

Analysis

Insurance Law
Under Texas law the insured generally bears the initial burden

of

establishing

that

coverage

is

potentially provided

by

the

applicable insurance policy, while it is the insurer's burden to
prove the applicability of an exclusion permitting it
coverage.
S.W.3d 86,

See SWE Homes,
90

(Tex. App.

LP v.

to deny

Wellington Insurance Co.,

-- Houston [14th Dist.]

436

2014, no pet.).

If the insurer is successful, the burden shifts back to the insured
to prove that an exception to the exclusion applies.

Guaranty

National Insurance Co. v. Vic Manufacturing Co., 143 F.3d 192, 193
(5th Cir. 1998).
1.

Contract Interpretation

Insurance

policies

interpretation.
( Tex . 2 0 1 0 ) .
court's

are

subject

State Farm Lloyds v.

to

the

Page,

rules

of

contract

315 S.W.3d 525,

527

In construing the terms of a written contract, the

primary

goal

is

always

"to

determine

the

contracting

parties' intent through the policy's written language."

Id.

The

court reads all parts of the contract as a whole and gives effect
to each word,

clause,

and sentence so that no provision of the
-11-

agreement is rendered inoperative.

Id.

Courts construe terms in

contracts to have their plain, ordinary meaning unless something in
the contract itself indicates that the parties intended for them to
have particular definitions.

Tanner v.

Nationwide Mutual Fire

Insurance Co., 289 S.W.3d 828, 831 (Tex. 2009).
When a

contract as worded can be given "a definite or certain

legal meaning," it is unambiguous as a matter of law, and the court
enforces it as written.

WBCMT 2007 C33 Office 9720, L.L.C. v. NNN

Realty Advisors, Inc., 844 F.3d 473, 478 (5th Cir. 2016)
Texas

law) .

The

court

will

not

find

an

insurance

(applying
contract

ambiguous because it lacks clarity or because the parties disagree
on its meaning.
contract

is

Id.;

Page,

ambiguous

only

315
if

S.W.3d at

it

is

527.

subject

to

"Instead,
two

or

a

more

reasonable interpretations after applying the pertinent canons of
construction."
(quoting
L.L.C.,

McLane

WBCMT 2007 C33 Office 9720, L.L.C., 844 F.3d at 478
Foodservice,

736 F.3d 375,

378

Inc.

(5th Cir.

v.

Table

2013))

Rock

Restaurants,

(internal quotations

omitted)
2.

Duty to Defend

In Texas an insurer's duty to defend and its duty to indemnify
are separate and distinct duties.

McGinnes Industrial Maintenance

Corp. v. Phoenix Insurance Co., 477 S.W.3d 786,

803

(Tex. 2015).

In determining whether an insurer has a duty to defend,
follow the eight-corners rule.

courts

Ewing Construction Co. v. Amerisure
-12-

Insurance Co., 420 S.W.3d 30, 33

(Tex. 2014).

"Under that rule,

courts look to the facts alleged within the four corners of the
pleadings,

measure

them

against

the

language

within

the

four

corners of the insurance policy, and determine if the facts alleged
present a matter that could potentially be covered by the insurance
policy.

Id.

11

The court examines the factual allegations that give

rise to the damages claims, not the legal conclusions or theories
asserted.

Id.

Doubts about the duty to defend are resolved in

favor of the insured.
those

easily

"Facts outside the pleadings,

ascertained,

determination

II

are

ordinarily

not

material

even

to

the

Liberty Mutual Insurance Co. v. Graham, 473

F.3d 596, 600 (5th Cir. 2006)
3.

Duty to Indemnify

The

duty

(applying Texas law).

to

indemnify

is

triggered

by

the

actual

facts

establishing the insured's liability in the underlying litigation,
which

may

differ

from

the

alleged

Insurance Co. v. DP Engineering,
Cir. 2016)

facts.

L.L.C.,

(applying Texas law) .

Hartford

827 F.3d 423,

Casualty
430

(5th

Therefore, with one recognized

exception, the duty to indemnify must be decided after a judgment
has been entered in the underlying suit.
County Mutual Insurance Co. v. Griffin,
1997)).

Id. (citing Farmers Texas
955 S.W.2d 81,

84

(Tex.

The recognized exception applies when "the same reasons

that negate the duty to defend likewise negate any possibility

-13-

[that]

the

insurer will ever have a

(quoting Griffin, 955 S.W.2d at 84)
B.

duty to

indemnify."

Id.

(internal quotations omitted).

Discussion

Huser argues
against

EHP' s

disagrees,

that Mt.

claims

in

Hawley has
the

a

duty to defend Huser

Underlying

Action.

Mt.

Hawley

arguing that the claims in the Underlying Action are

excluded from

coverage

by

the

Mt.

Hawley

Policies'

Breach of

Contract Exclusion.
1.

The Breach of Contract Exclusion

Mt. Hawley essentially admits that coverage exists based on
the

terms

of

the

Mt.

Hawley

Policies

and

EHP's

Petition. 26

Mt. Hawley therefore has the burden of proving that one or more
policy exclusions apply.
The Breach of Contract Exclusion is included as an endorsement
in each of the Mt. Hawley Policies.
of

Contract

Exclusion

provides

In relevant part, the Breach

that

any

claim

or

"suit"

for

"property damage" "arising directly or indirectly out of" breaches
of contract and/ or warranty are not covered by the Mt.
Policies.

Hawley

The parties do not contest that the Underlying Action

is a "suit" for "property damage."

The parties dispute (1) whether

the property damage that is the subject of the Underlying Action
"ar[ose] directly or indirectly" out of a breach of the contract

26

See Mt. Hawley's Motion, Docket Entry No. 8, p. 15.
-14-

between Huser and EHP and

(2)

whether the Mt.

Hawley Policies'

separate "Your Work" Exclusion, and its subcontractor exception,
preserve coverage because the property damage in the Underlying
Action was caused by a subcontractor.
CGL policies grant the insured broad coverage for property
damage

or bodily

injury

exclusions

that

afforded."

Lamar Homes,

S.W.3d

1,

10

liability,

"restrict

(Tex.

and

which

shape

is

the

then

narrowed by

coverage

otherwise

Inc. v. Mid-Continent Casualty Co., 242
2007)

(internal

quotations

omitted).

"Exclusions exist for intended or expected losses, as well as for
contractually-assumed

liabilities,

The

under

worker's

and for a number of so-called

compensation and related laws .
business risks."

obligations

Id.

Fifth Circuit has

held that under Texas

law

"when an

exclusion prevents coverage for injuries 'arising out of' particular
conduct, '[a] claim need only bear an incidental relationship to the
described conduct for the exclusion to apply. '"
Inc. v.

Columbia Casualty Co.,

(alteration in original)
Security Concepts
1999)).

&

335 F.3d 453,

Sport Supply Group,
458

(5th Cir.

2003)

(quoting Scottsdale Insurance Co. v. Texas

Investigation,

173

F. 3d 941,

943

(5th Cir.

The Texas Supreme Court has interpreted this language "to

mean that there is but for causation, though not necessarily direct
or proximate causation."

Utica National Insurance Co. of Texas v.

American Indemnity Co., 141 S.W.3d 198, 203 (Tex. 2004).

Exclusions

containing "arising out of" language are "given a broad, general,
-15-

and comprehensive interpretation."
F.3d at 943.
broader

In addition,

significance

than

Scottsdale Insurance Co., 173

"' [a] rising out of' are words of much
'caused

by.'

understood to mean 'originating from[,]'

They

are

ordinarily

'having its origin in,'

'growing out of[,]' or 'flowing from,' or in short, 'incident to, or
having connection with'.

"

EMCASCO Insurance Co. v. American

International Specialty Lines Insurance Co., 438 F.3d 519,

524-25

(5th Cir. 2006).
In the Underlying Action EHP sued both Schaffer and Huser
alleging they were at fault for construction defects in the EHP
Project.

EHP' s

Petition clearly states separate claims against

Huser and Schaffer:

EHP' s

Petition contains a

section labeled

"Huser's Breach of Contract and Negligence" and another,
section

labeled

"Schaffer's

Breach

of

Contract,

separate

Negligence,

Violations of the DTPA and Fraudulent Misrepresentations. " 27

The

Underlying Action alleges that "HUSER has breached its contract or,
in the

alternative,

has

negligently supervised and staffed the

project in question all proximately causing damages or producing
damages which have far exceeded the minimum jurisdictional limits of
this Court. " 28

Huser's contract with EHP imposed upon Huser a duty

to supervise and staff the EHP Project with adequate subcontractors.
EHP alleges that Huser's failure to hire and supervise qualified

27

See EHP' s Petition, Exhibit 1 to Mt.
Docket Entry No. 1-1, pp. 4-6.
28

See id. at 5 (emphasis added)
-16-

Hawley's Complaint,

contractors directly resulted in the "property damage" claimed in
the Underlying Action.

In other words, EHP alleges that Huser was

a "but for" cause of the property damage claimed.

The facts and

allegations in the Underlying Action therefore make clear that the
"property damage" at issue "ar [ose]

directly or indirectly" from

Huser's alleged breach of its contract with EHP.
The Breach of Contract Exclusion does not, as Huser contends,
render coverage under the Mt.

Hawley Policies

illusory. 29

The

Breach of Contract Exclusion does not reach every claim against an
insured whose
requires
contract.
Co.,

a

work

is

breach of

contractual
contract,

not

in nature
merely

See Scottsdale Insurance Co. v.

the
Mt.

the

existence of

15,

2011),

affirmed,

488

F.

App'x

859

a

Hawley Insurance

Civil Action No. M-·10-58, 2011 WL 9169946, at *9

June

exclusion

(5th

(S.D. Tex.
Cir.

2012)

("Although these allegations might be incidentally related to the
existence of a contract, they do not necessarily bear an incidental

relationship to a breach of that contract or the failure to carry
out contracted-for services in a good and workmanlike manner.").
EHP's claims are at least incidentally related to Huser's breach of
their contract, not merely the existence of their contract.
While Schaffer and other subcontractors on the EHP Project may
be partially responsible for the property damage claimed in the
Underlying Action, the Breach of Contract Exclusion still negates

29

See Huser's Response and Cross Motion, Docket Entry No.

p. 25.
-17-

9,

Mt. Hawley's duty to defend.

There is no evidence to suggest, as

Huser argues, that the subcontractor exception contained within the
"Your

Work"

Exclusion

preserves

coverage.

The

"Your

Work"

Exclusion provides that the Mt. Hawley Policies do not apply to
"property damage" caused by "your work" (i.e. , Huser's work) unless
that work was performed by a subcontractor, in which case coverage
Huser cites Lamar Homes

under the exclusion is preserved.

in

support of its argument that the "Your Work" Exclusion explicitly
preserves coverage for property damage caused by subcontractors.
Lamar Homes cited the "Your Work" Exclusion, and the subcontractor
exception contained within

it,

as

exclusions used in CGL policies.
Nothing

in

additional

Lamar

Homes

exclusion

an example

of

the

types

of

Lamar Homes, 242 S.W.3d at 11.

prevents

eliminating

arising out of a breach of contract.

an

insurer

coverage

for

from

adding

property

an

damage

Lamar Homes held the opposite

-- the court discussed the many types of exclusions insurers can
utilize, including those that exclude the insured's "contractuallyassumed liabilities."

Id.

at

10.

The

subcontractor exception

contained within the "Your Work" Exclusion expressly modifies only
the "Your Work" Exclusion, not the other exclusions contained in
the Mt. Hawley Policies. 30

Just because the "Your Work" Exclusion

30

See,
e.g.,
Commercial
General
Liability
Policy
No. MGL0174186, Exhibit 2 to Mt. Hawley's Complaint, Docket Entry
No. 1-2, p. 8.
The subcontractor exception states:
"This
exclusion does not apply if the damaged work or the work out of
which the damage arises was performed on your behalf by a
subcontractor" (emphasis added) .
-18-

preserves coverage for damage caused by subcontractors does not
mean that other policy exclusions must do the same.
Further,

"[i] t

is well-settled that to the extent that an

endorsement conflicts with other policy language, the endorsement
controls."

Scottsdale, 2011 WL 9169946, at *9 (citing Mid-Continent

Casualty Co. v. Bay Rock Operating Co., 614 F.3d 105, 115 (5th Cir.
2010)).

The Breach of Contract Exclusion is an endorsement that

explicitly states:

"THIS ENDORSEMENT CHANGES THE POLICY." 31

purpose of the Breach of Contract Exclusion is clear:
coverage

afforded by

the Mt.

Hawley

Policies.

The

to limit the

The

Breach of

Contract Exclusion therefore limits the terms of the "Your Work"
Exclusion's subcontractor exception when "property damage" "aris [es]
directly or indirectly out of" a breach of contract.
of the Breach of Contract Exception is unambiguous.

The language
Huser's inter-

pretation fails to overcome the plain language of the Breach of
Contract Exclusion.

The court will therefore apply the Breach of

Contract Exclusion according to its plain language.

EHP's claims

against Huser in the Underlying Action are therefore excluded from
coverage by the Breach of Contract Exclusion.

Mt. Hawley does not

have a duty to defend Huser in the Underlying Action. 32

31

See, e.g. , id.

32

Because Mt. Hawley does not have a duty to defend Huser in
the Underlying Action, Mt. Hawley has not breached its contracts
with Huser by refusing to defend Huser in the Underlying Action.
Huser's claim for breach of contract therefore fails as a matter of
law.
-19-

2.

Mt. Hawley's Duty to Indemnify

A court may decide whether an insurer has a duty to indemnify
an insured before a judgment in the underlying case when the same
facts that negate the insurer's duty to defend also negate the
insurer's duty to indemnify.

As discussed above, Huser's liability

to EHP for the claims asserted in the Underlying Action "ari[ses]
directly or

indirectly out

contract with EHP.
coverage.

of"

Huser's

alleged

breach of

its

Huser's claims are therefore excluded from

Because all of the claims in the Underlying Action are

not covered by the Mt. Hawley Policies, Mt. Hawley also has no duty
to indemnify Huser.
3.

Huser's Counterclaims Against Mt. Hawley

Huser
violations

filed
of

counterclaims

the

alleges that Mt.

Texas

against

Insurance

Code.

Mt.

Hawley

alleging

Specifically,

Huser

Hawley engaged in Unfair Settlement Practices,

Tex. Ins. Code§ 541.060, Misrepresentation of an Insurance Policy,
Tex. Ins. Code§ 541.061, and violated the Prompt Payment of Claims
Act,

Tex.

Ins.

Code § 542.058.

Huser alleges that Mt.

Hawley

violated § 541.060 by "refusing to pay a claim without conducting
a reasonable investigation . . .
violated

§

541.061

by

II

making

33

Huser alleges that Mt. Hawley

false

or

misleading

regarding coverage under the Mt. Hawley Policies.

33

See Huser's Answer, Docket Entry No. 6, p. 7
-20-

statements

Huser alleges

~

21.

that as a result of these violations, "Huser has suffered and will
continue to suffer actual damages. " 34
To recover under

§

541.060, the insured must prove that the

insurer acted in bad faith.

See Higginbotham v. State Farm Mutual

Automobile Insurance Co., 103 F.3d 456, 460 (5th Cir. 1997) ("Texas
courts have clearly ruled that these extra-contractual tort claims
[under the DTPA and Insurance Code] require the same predicate for
recovery as bad faith causes of action in Texas.")
rule

"As a general

there can be no claim for bad faith when an insurer has

promptly denied a claim that is in fact not covered."

Republic

Insurance Co. v. Stoker, 903 S.W.2d 338, 341 (Tex. 1995)

For an

insured to recover on a bad-faith-based insurance claim when the
insurer has
covered by

properly denied coverage
the

policy,

the

for

insured must

a

claim that

not

that

demonstrate

is

the

insurer has committed an injury independent of the policy claim.
Id.
The
allegedly
Action.

injuries
improper

alleged by Huser
refusal

As explained above,

to

are

defend

based on Mt.

Huser

in

the

Hawley's

Underlying

Mt. Hawley does not have a duty to

defend Huser in the Underlying Action.

Therefore, to recover on

its Texas Insurance Code claims requiring a finding of bad faith,
Huser must point to extreme actions by Mt. Hawley causing Huser to
suffer an injury independent of Mt.

34

See id.

~

23.
-21-

Hawley's refusal to defend

Huser.

Huser has failed to do so.

Because Mt. Hawley does not

have a duty to defend Huser in the Underlying Action and Huser has
failed to allege that Mt. Hawley caused it to suffer an independent
injury, Huser's Unfair Settlement Practices claim fails.
Section 541.061 provides that "[i]t is an unfair method of
competition or an unfair or deceptive

act

or practice

in the

business of insurance to misrepresent an insurance policy by .
making an untrue statement of material fact" regarding the coverage
available under a policy.
541.061

also

provides

Tex.

other

Ins.
types

communications by an insurer that

Code § 541.061.
of

false

or

Section
misleading

can constitute an unfair or

deceptive practice under the statute.

See id.

Huser fails to

allege specific facts to support that Mt. Hawley made any of the
false statements contemplated by§ 541.061.

Because Mt. Hawley had

no duty to defend Huser, any statements made to that effect would
not constitute misrepresentations.

Huser's Misrepresentation of an

Insurance Policy claim therefore fails.
"To prevail under the
the plaintiff must

[Texas]

establish that

Prompt Payment of Claims Act,
there

is

a

claim under the

insurance policy for which the insurer is liable.
does

not

lawsuits,

provide
the

coverage

insurer is

for

not

L.P.

F. App'x 310,

(5th Cir.

Mutual Insurance Co. v. Boyd,

claims

liable under

Technology Services,
314-15

v.

the

in
the

If the policy
the

underlying

statute."

Liberty Mutual Insurance Co.,
2013)

515

(citing Progressive County

177 S.W.3d 919,
-22-

PPI

922

(Tex.

2005)).

Because Mt. Hawley has no duty to defend Huser in the Underlying
Action, Mt. Hawley cannot be held liable under the Prompt Payment
of Claims Act.
IV.
For

the

reasons

Conclusion

explained

above,

the

court

finds

that

Mt. Hawley has no duty to defend or indemnify Huser for the claims
asserted in the Underlying Action.

Huser's breach of contract and

insurance law counterclaims predicated on Mt. Hawley's failure to
defend

Huser

therefore

also

fail.

Accordingly,

Plaintiff

Mt. Hawley Insurance Company's Motion for Judgment on the Pleadings
or in the Alternative Motion for Summary Judgment
No.

8)

is GRANTED,

(Docket Entry

and Defendant's Cross Motion on the Duty to

Defend (Docket Entry No. 9) is DENIED.
SIGNED at Houston, Texas, on this the 19th day of March, 2019.

UNITED STATES DISTRICT JUDGE

-23-