United States Court of Appeals Fifth Circuit F I L E D UNITED STATES COURT OF APPEALS For the Fifth Circuit April 9, 2003
No. 01-21228 Charles R. Fulbruge III Clerk
NATIONAL AMERICAN INSURANCE COMPANY,
Plaintiff - Counter Defendant - Appellant,
VERSUS
H.E. BUTT GROCERY COMPANY,
Defendant - Counter Claimant - Appellee.
Appeal from the United States District Court For the Southern District of Texas, Houston Division
(H-01-0797)
Before JOLLY, DUHÉ, and DENNIS, Circuit Judges.
DENNIS, Circuit Judge:*
In this declaratory judgment action, plaintiff-appellant
National American Insurance Company (“NAICO”) and defendant-
appellee H.E. Butt Grocery Company (“HEB”) dispute whether an
insurance policy issued by NAICO to Edmond’s Refrigeration, Inc.
(“Edmond’s”) requires NAICO to defend and indemnify HEB in a suit
* 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 R. 47.5, the court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5TH CIR.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.
1 brought by an Edmond’s employee. The district court found that it
did. Because the underlying agreement between HEB and Edmond’s
does not unambiguously require Edmond’s to provide HEB with
insurance coverage for this type of suit, we REVERSE the grant of
summary judgment by the district court, VACATE the award of
attorney’s fees to HEB, and REMAND this case to the district court.
I. Background
On January 9, 1997, HEB entered into a Maintenance Agreement
(“Agreement”) with Edmond’s. Under the contract, Edmond’s provided
maintenance for the heating, ventilation, air conditioning, and
refrigeration equipment in a number of HEB’s stores. In addition,
Paragraph 15 of the Agreement required Edmond’s to furnish HEB
“with a liability [hold]1 harmless insurance policy or a reasonable
facsimile thereof on personnel working in [HEB’s] stores.” The
Agreement was later renewed through November 31, 2001.
On April 1, 1998, pursuant to the Agreement, NAICO issued
Edmond’s a Texas Commercial Package Liability Policy, policy number
CMP379142D, effective from April 1, 1998 to April 1, 1999. Section
II.5 of the policy contains the following endorsement for
“Additional Insureds” (“Additional Insured Endorsement”):
5. Any entity you are required in a written contract (hereafter called Additional Insured)
1 Paragraph 15 contained the word “whole.” But HEB and NAICO agree that the parties to the Agreement intended to use the word “hold.”
2 to name as an insured is an insured but only with respect to liability arising out of your premises, “your work” for the Additional Insured, or acts or omissions of the Additional Insured in connection with the general supervision of “your work” to the extent set forth below
. . .
e. Except when required otherwise by contract, this insurance does not apply to:
(2) “Bodily injury” or “property damage” arising out of any act or omission of the Additional Insured(s) or any of their employees, other than the general supervision of work performed for the Additional Insured(s) by you.
On April 14, 1999, Robert Admire, an Edmond’s employee, filed
a premises liability suit against HEB in Texas state court,
alleging he was injured after falling headfirst from the roof
access of an HEB store while performing maintenance work there.
Admire claimed that a defective security gate was responsible for
his injury, which occurred on August 3, 1998.
NAICO agreed to provide HEB with a defense to the Admire suit
under a reservation of rights declaration. On March 8, 2001,
however, it filed this action seeking a declaratory judgment that
it had no duty to defend or indemnify HEB in that suit. Both
parties moved for summary judgment. On September 24, 2001, the
district court granted summary judgment in favor of HEB, holding
3 that NAICO was required to defend and indemnify HEB in the Admire
suit. On November 19, 2001, the court denied NAICO’s motion for
reconsideration and the next day ordered it to pay HEB $8,750 in
attorney’s fees. NAICO timely appealed.
II. Analysis
The parties agree that if HEB is an “additional insured” under
Edmond’s liability policy for purposes of the Admire suit, then
NAICO is required to defend and indemnify HEB. "The interpretation
of an insurance contract ... is a legal determination meriting de
novo review." Nat’l Union Fire Ins. Co. v. Kasler, 906 F.2d 196,
197 (5th Cir. 1990); see also Mid-Continent Cas. Co. v. Swift
Energy Co., 206 F.3d 487, 491 (5th Cir. 2000). Therefore, we
review de novo the district court's determination that HEB was
covered as an "additional insured" under the NAICO policy.
Under Texas law, which we apply in this diversity action,
insurance policies are contracts and are therefore governed by the
general rules of construction applicable to contracts. State Farm
Life Ins. Co. v. Beaston, 907 S.W.2d 430 (Tex. 1995). When
interpreting a contract, the court’s main duty is to give effect to
the written expression of the parties’ intent. See Forbau v. Aetna
Life Ins. Co., 876 S.W.2d 132, 134 (Tex. 1994). When the terms
used in an insurance policy are unambiguous, they are to be given
their plain, ordinary, and generally accepted meaning unless the
4 instrument itself shows that the terms have been used in a
technical or different sense. Sec. Mut. Cas. Co. v. Johnson, 584
S.W.2d 703, 704 (Tex. 1979). But if the provision is susceptible
to more than one fair and reasonable interpretation, then the
provision is ambiguous. See Ohio Cas. Group of Ins. Cos. v.
Chavez, 942 S.W.2d 654, 658 (Tex. App. 1997). Whether an insurance
provision is ambiguous is a question of law. Id. at 657.
Under a general liability policy, like that at issue in this
case, an insurer has a duty to defend its insured if the
allegations in a suit allege facts that are potentially covered by
the policy. Fid. & Guar. Ins. Underwriters, Inc. v. McManus, 633
S.W.2d 787 (Tex. 1982). A duty to indemnify arises when the
underlying litigation establishes liability for damages covered by
the insuring agreement of the policy. Malone v. Scottsdale Ins.
Co., 147 F. Supp. 2d 623 (S.D. Tex. 2001).
As we noted above, the Additional Insured Endorsement states:
“Any entity you are required in a written contract ... to name as
an insured is an insured but only with respect to any liability
arising out of ... ‘your work’ for the Additional Insured.” Both
parties recognize that this general provision is limited by Section
II.5.e.2, which states: “Except when required otherwise by
contract, this insurance does not apply to: ...’Bodily injury’ ...
arising out of any act or omission of the Additional Insured(s)
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United States Court of Appeals Fifth Circuit F I L E D UNITED STATES COURT OF APPEALS For the Fifth Circuit April 9, 2003
No. 01-21228 Charles R. Fulbruge III Clerk
NATIONAL AMERICAN INSURANCE COMPANY,
Plaintiff - Counter Defendant - Appellant,
VERSUS
H.E. BUTT GROCERY COMPANY,
Defendant - Counter Claimant - Appellee.
Appeal from the United States District Court For the Southern District of Texas, Houston Division
(H-01-0797)
Before JOLLY, DUHÉ, and DENNIS, Circuit Judges.
DENNIS, Circuit Judge:*
In this declaratory judgment action, plaintiff-appellant
National American Insurance Company (“NAICO”) and defendant-
appellee H.E. Butt Grocery Company (“HEB”) dispute whether an
insurance policy issued by NAICO to Edmond’s Refrigeration, Inc.
(“Edmond’s”) requires NAICO to defend and indemnify HEB in a suit
* 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.
1 brought by an Edmond’s employee. The district court found that it
did. Because the underlying agreement between HEB and Edmond’s
does not unambiguously require Edmond’s to provide HEB with
insurance coverage for this type of suit, we REVERSE the grant of
summary judgment by the district court, VACATE the award of
attorney’s fees to HEB, and REMAND this case to the district court.
I. Background
On January 9, 1997, HEB entered into a Maintenance Agreement
(“Agreement”) with Edmond’s. Under the contract, Edmond’s provided
maintenance for the heating, ventilation, air conditioning, and
refrigeration equipment in a number of HEB’s stores. In addition,
Paragraph 15 of the Agreement required Edmond’s to furnish HEB
“with a liability [hold]1 harmless insurance policy or a reasonable
facsimile thereof on personnel working in [HEB’s] stores.” The
Agreement was later renewed through November 31, 2001.
On April 1, 1998, pursuant to the Agreement, NAICO issued
Edmond’s a Texas Commercial Package Liability Policy, policy number
CMP379142D, effective from April 1, 1998 to April 1, 1999. Section
II.5 of the policy contains the following endorsement for
“Additional Insureds” (“Additional Insured Endorsement”):
5. Any entity you are required in a written contract (hereafter called Additional Insured)
1 Paragraph 15 contained the word “whole.” But HEB and NAICO agree that the parties to the Agreement intended to use the word “hold.”
2 to name as an insured is an insured but only with respect to liability arising out of your premises, “your work” for the Additional Insured, or acts or omissions of the Additional Insured in connection with the general supervision of “your work” to the extent set forth below
. . .
e. Except when required otherwise by contract, this insurance does not apply to:
(2) “Bodily injury” or “property damage” arising out of any act or omission of the Additional Insured(s) or any of their employees, other than the general supervision of work performed for the Additional Insured(s) by you.
On April 14, 1999, Robert Admire, an Edmond’s employee, filed
a premises liability suit against HEB in Texas state court,
alleging he was injured after falling headfirst from the roof
access of an HEB store while performing maintenance work there.
Admire claimed that a defective security gate was responsible for
his injury, which occurred on August 3, 1998.
NAICO agreed to provide HEB with a defense to the Admire suit
under a reservation of rights declaration. On March 8, 2001,
however, it filed this action seeking a declaratory judgment that
it had no duty to defend or indemnify HEB in that suit. Both
parties moved for summary judgment. On September 24, 2001, the
district court granted summary judgment in favor of HEB, holding
3 that NAICO was required to defend and indemnify HEB in the Admire
suit. On November 19, 2001, the court denied NAICO’s motion for
reconsideration and the next day ordered it to pay HEB $8,750 in
attorney’s fees. NAICO timely appealed.
II. Analysis
The parties agree that if HEB is an “additional insured” under
Edmond’s liability policy for purposes of the Admire suit, then
NAICO is required to defend and indemnify HEB. "The interpretation
of an insurance contract ... is a legal determination meriting de
novo review." Nat’l Union Fire Ins. Co. v. Kasler, 906 F.2d 196,
197 (5th Cir. 1990); see also Mid-Continent Cas. Co. v. Swift
Energy Co., 206 F.3d 487, 491 (5th Cir. 2000). Therefore, we
review de novo the district court's determination that HEB was
covered as an "additional insured" under the NAICO policy.
Under Texas law, which we apply in this diversity action,
insurance policies are contracts and are therefore governed by the
general rules of construction applicable to contracts. State Farm
Life Ins. Co. v. Beaston, 907 S.W.2d 430 (Tex. 1995). When
interpreting a contract, the court’s main duty is to give effect to
the written expression of the parties’ intent. See Forbau v. Aetna
Life Ins. Co., 876 S.W.2d 132, 134 (Tex. 1994). When the terms
used in an insurance policy are unambiguous, they are to be given
their plain, ordinary, and generally accepted meaning unless the
4 instrument itself shows that the terms have been used in a
technical or different sense. Sec. Mut. Cas. Co. v. Johnson, 584
S.W.2d 703, 704 (Tex. 1979). But if the provision is susceptible
to more than one fair and reasonable interpretation, then the
provision is ambiguous. See Ohio Cas. Group of Ins. Cos. v.
Chavez, 942 S.W.2d 654, 658 (Tex. App. 1997). Whether an insurance
provision is ambiguous is a question of law. Id. at 657.
Under a general liability policy, like that at issue in this
case, an insurer has a duty to defend its insured if the
allegations in a suit allege facts that are potentially covered by
the policy. Fid. & Guar. Ins. Underwriters, Inc. v. McManus, 633
S.W.2d 787 (Tex. 1982). A duty to indemnify arises when the
underlying litigation establishes liability for damages covered by
the insuring agreement of the policy. Malone v. Scottsdale Ins.
Co., 147 F. Supp. 2d 623 (S.D. Tex. 2001).
As we noted above, the Additional Insured Endorsement states:
“Any entity you are required in a written contract ... to name as
an insured is an insured but only with respect to any liability
arising out of ... ‘your work’ for the Additional Insured.” Both
parties recognize that this general provision is limited by Section
II.5.e.2, which states: “Except when required otherwise by
contract, this insurance does not apply to: ...’Bodily injury’ ...
arising out of any act or omission of the Additional Insured(s)
5 ..., other than the general supervision of work performed for the
Additional Insured(s) by you.” HEB contends that the opening
phrase of Section II.5.e.2, which makes the limitation inapplicable
“when otherwise provided by contract,” controls the outcome because
Edmond’s was required by Paragraph 15 of the Agreement to furnish
HEB with insurance coverage for HEB’s own negligence. Paragraph 15
requires Edmond’s to furnish HEB “with a liability [hold] harmless
insurance policy or a reasonable facsimile thereof on personnel
working in [HEB’s] stores.” HEB thus argues that NAICO’s coverage
of HEB is required by the “otherwise provided by contract”
language, such that NAICO must defend and indemnify HEB for all
acts involving Edmond’s personnel. In response, NAICO maintains
that Paragraph 15 only requires Edmond’s to provide HEB with
coverage for acts in which Edmond’s employees cause injury while
performing work for HEB, not for acts in which Edmond’s employees
are injured by HEB’s own negligent acts.
To resolve this coverage dispute, therefore, it must be
determined whether Paragraph 15 of the Agreement requires Edmond’s
to furnish coverage for HEB’s negligence that causes injury to
Edmond’s personnel or merely requires Edmond’s to provide HEB with
insurance against damage caused by Edmond’s personnel. The wording
of Paragraph 15 is, however, ambiguous. In particular, the phrase
“on personnel” is susceptible to multiple meanings. Under NAICO’s
6 interpretation, the phrase means “on acts of personnel,” thereby
only requiring coverage of negligent acts caused by Edmond’s
employees. HEB maintains that it means “involving personnel,”
which would cover both negligent acts caused by Edmond’s employees
and negligent acts that injure Edmond’s employees. We conclude
that this phrase is sufficiently vague to reasonably encompass both
interpretations. Because both interpretations are reasonable,
neither is controlling. Consequently, the intent of the parties
cannot be ascertained from the written expressions in the contract,
and the contract is ambiguous.2
Generally, when an insurance contract is ambiguous, the
contract is construed in favor of coverage. Balandran, 972 S.W.2d
at 741. This rule is based on the more general rule that ambiguous
contracts are construed against its author. Id. at 741 n.1;
Temple-Eastex Inc. v. Addison Bank, 672 S.W.2d 793, 798 (Tex.
1984). But here, it is not the insurance agreement that is
ambiguous. Rather, it is the Agreement, which NAICO did not draft.
2 Because Paragraph 15 is an independent insurance-shifting provision, the express negligence doctrine is not applicable. The express negligence doctrine only applies to indemnity agreements and insurance-shifting provisions that support an indemnity provision. See Getty Oil Co. v. Ins. Co. of N. Am., 845 S.W.2d 794, 806 (Tex. 1992); Emery Air Freight Corp. v. General Transport Sys., Inc., 933 S.W.2d 312, 314 (Tex. App. 1996). Here, both parties agree that the Agreement does not contain an indemnity agreement. Therefore, because Paragraph 15 is not an indemnity provision and not an insurance-shifting provision supporting one, the express negligence doctrine does not apply.
7 Therefore, we cannot automatically find coverage based on ambiguity
in the insurance agreement. In addition, because Edmond’s, which
is not a party to this suit, drafted the Agreement, we will refuse
to construe the ambiguity against HEB.
Because we cannot resolve this coverage dispute based on any
available rules of contract interpretation, the parties must resort
to parol evidence to determine whether the contracting parties
intended for the Agreement to require insurance coverage for
negligent acts to Edmond’s personnel. Thus, there is a disputed
issue of material fact that precludes summary judgment. Therefore,
we REVERSE the grant of summary judgment and REMAND to the district
court for determination of this issue. In addition, because
summary judgment was not proper, we VACATE the award of attorneys’
fees granted to HEB. Finally, given our holding, we need not reach
the issue of whether HEB introduced sufficient evidence to support
a finding of a duty to indemnify.
III. Conclusion
Because the Agreement is ambiguous, we cannot determine
whether NAICO has a duty to defend and indemnify HEB for the
Admire lawsuit. Therefore, we REVERSE the grant of summary
judgment, REMAND the case to the district court, and VACATE the
district court’s award of attorney’s fees to HEB.