Mt. Hawley Ins. Co. v. Slay Eng'g, Tex. Multi-Chem, Huser Constr., LLC

409 F.Supp.3d 587

MT. HAWLEY INSURANCE CO., Plaintiff,

v.SLAY ENGINEERING, TEXAS MULTI-CHEM, HUSER CONSTRUCTION, LLC and Huser Construction Co., Inc., Defendants.

Civil Action No. 5-18-cv-00252-OLG

United States District Court, W.D. Texas, San Antonio Division.

Signed August 23, 2019

Richard L. Smith, Jr., Gregory K. Winslett, Quilling Selander Lownds Winslett & Moser, PC, Tammy L. Clary, Quilling, Selander, Cummiskey & Lownds, P.C., Dallas, TX, for Plaintiff.

Patrick J. Wielinski, Travis M. Brown, Cokinos Young, Irving, TX, Stephanie Lyn O'Rourke, Travis K. Riley, Cokinos Young, San Antonio, TX, for Defendants.

ORDER AND FINAL JUDGMENT

ORLANDO L. GARCIA, Chief United States District Judge

On this day, the Court considered Mt. Hawley's Motion for Judgment on the Pleadings or Alternatively for Summary Judgment on the Duty to Defend [sic] and Defendants' Counterclaims (docket no. 70) (the "Motion").¹

The present case concerns a coverage dispute between a general contractor, Defendant Slay Engineering, Texas Multi-Chem, Huser Construction LLC ("Huser") and Defendant Huser Construction Co., Inc. ("Huser Construction," and together with Huser, "Defendants"),² and Defendants' insurer, Plaintiff Mt. Hawley Insurance Company ("Mt. Hawley"). Specifically, Mt. Hawley initiated the instant lawsuit seeking a declaratory judgment that it had no duty to defend and no duty to indemnify Defendants in state court litigation between Defendants and the City of Jourdanton, Texas (the "City") regarding alleged defects with a municipal construction project. See docket no. 54; City of Jourdanton v. Slay Engineering/Texas Multi-Chem/Huser Construction, LLC and North American Specialty Ins. Co. , No. 17-12-1181-CVA (81st Judicial District Court of Atascosa County, Texas) (hereinafter, the "Underlying Suit"). Defendants filed counterclaims against Mt. Hawley also seeking a declaratory judgment that Mt. Hawley in fact had the duty to defend and indemnify Defendants in the Underlying Suit. See docket no. 55. In addition, Defendants asserted counterclaims for breach of contract and extra-contractual bad faith claims against Mt. Hawley related to the coverage dispute. See id.

As this action was progressing before this Court, the parties were also proceeding with similar parallel litigation in the United States District Court for the Southern District of Texas.³ See Mt. Hawley Ins. Co. v. Huser Constr. Co., Inc. , No. 4:18-cv-00787 (S.D. Tex., filed Mar. 13, 2018) (the "Southern District Litigation").⁴ Although the two disputes involved different construction projects, both this case and the Southern District Litigation involve the interpretation of identical coverage exclusions, exceptions and/or endorsements from coverage contracts between Mt. Hawley and Defendants. Compare docket nos. 54-3, 54-4, 54-5 & 54-6 (collectively, the "Policies") with S.D. docket no. 1-2. In particular, all Policies contain a "your work" exclusion, an exception to that exclusion for work performed by subcontractors, and a separate endorsement containing a breach of contract exclusion.⁵ In particular, the endorsement containing the Breach of Contract Exclusion specifies, in relevant part, that coverage does not extend to "any claim or ‘suit’ for ... ‘property damage’ ... arising directly or indirectly out of ... [b]reach of express or implied contract [or] breach of express or implied warranty." See, e.g. , docket no. 54-3 p. 52. In both this case and the Southern District Litigation, the district court was asked to determine whether—in light of the Policies' language—the allegations in the respective state court lawsuit require Mt. Hawley to defend and/or indemnify Huser and/or Huser Construction in the underlying litigation.

On March 19, 2019, United States District Judge Sim Lake issued an order in the Southern District Litigation. Mt. Hawley Ins. Co. v. Huser Constr. Co. , Civil Action No. H-18-0787, 2019 WL 1255756 (S.D. Tex. Mar. 19, 2019) (the "Southern District Order"). The Southern District Order held that the Breach of Contract Exclusion in the Mt. Hawley-Huser Construction contract meant that Mt. Hawley had no duty to defend Huser Construction with respect to the underlying litigation in that case involving a Huser Construction project in Pleasanton, Texas. See id. Specifically, the Southern District Order noted that an endorsement controls over conflicting policy language, and, after finding the Breach of Contract Exclusion to be unambiguous, held that the Breach of Contract Exclusion relieves Mt. Hawley of its duty to provide coverage for the contract-related damage caused by Huser Construction's subcontractors' allegedly defective work at that site. See id. at *7-8. The Southern District Order also issued judgment in Mt. Hawley's favor with respect to the duty to indemnify, holding that the same facts that negated Mt. Hawley's duty to defend also negated Mt. Hawley's duty to indemnify in that case. See id. at *8. Finally, in light of those conclusions, the Southern District Order issued judgment in Mt. Hawley's favor with respect to various counterclaims that had been asserted by Huser Construction. See id. at *8-9. Huser Construction filed a motion to amend the Southern District Order, which was denied. See S.D. docket nos. 21, 22 & 23. On May 24, 2019, Huser Construction filed its Notice of Appeal of the Southern District Order. See S.D. docket no. 24.

On June 13, 2019, this Court issued an Order in which the Court granted Mt. Hawley's Motion for Summary Judgment (docket no. 13) with respect to the duty to defend. See docket no. 63 (the "Prior Order").⁶ Although this Court had reviewed the Southern District Order prior to reaching its conclusion with respect to the duty to defend in this litigation, this Court's Prior Order recognized the differences between this litigation and the Southern District Litigation. See id. Indeed, the Prior Order ultimately adopted a less expansive interpretation of the Breach of Contract Exclusion than that which was adopted in the Southern District Litigation. See id. at Section I. Specifically, this Court held that it was reasonable to interpret the Breach of Contract Exclusion such that it only excluded property damage resulting from a breach of Defendants' own contractual obligations or warranties (as opposed to any breach by any party with any relation to the site). See id. However, notwithstanding the fact that the Court found the more limited interpretation to be reasonable, the Court—having reviewed the allegations in the complaint in the Underlying Suit—concluded that even the more limited scope of the exclusion appeared to cover all alleged property damage in the Underlying Suit. X at Section II. Thus, the Court concluded that the allegations in the Underlying Suit fell squarely within the terms of the Breach of Contract Exclusion such that Mt. Hawley had no duty to defend Defendants with respect to the City's breach of contract or negligence claims. See id.

Unlike the Southern District Order, this Court's Prior Order declined to address the issue of the duty to indemnify, and the Prior Order noted that Mt. Hawley may ultimately have a duty to indemnify Defendants even if it had no duty to defend. See id. at p. 13 n.12. The Court also declined to address the merits of Defendants' counterclaims. See id. However, the Prior Order invited the parties to move as to those claims in the event they believed they were entitled to judgment as to those issues in light of the Court's conclusion with respect to the duty to defend. See id. Defendants moved for reconsideration of the Prior Order on June 18, 2019, and the Court denied the motion for reconsideration on June 27, 2019. See docket nos. 63 & 69.

In light of the Prior Order, Mt. Hawley filed the instant Motion on July 17, 2019. See docket no. 70. In the Motion, Mt. Hawley seeks summary judgment with respect to the duty to indemnify and with respect to Defendants' various counterclaims. See id. On July 31, 2019, Defendants filed a response to Mt. Hawley's Motion, and on August 7, 2019, Mt. Hawley filed a reply. See docket nos. 71 & 72.

Having reviewed Mt. Hawley's Motion and the parties' briefing, the Court addresses each of the remaining claims below.

LEGAL STANDARD

Under the Federal Rules of Civil Procedure, summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issues as to any material fact and that the moving party is entitled to judgment as a matter of law." See Fed. R. Civ. P. 56(c). In making the determination of whether a genuine issue of material fact exists, the court reviews the facts and inferences to be drawn from them in the light most favorable to the non-moving party. See Reaves Brokerage Co., Inc. v. Sunbelt Fruit & Vegetable Co., Inc. , 336 F.3d 410, 412 (5th Cir. 2003).

At the summary judgment stage, the movant bears the burden of identifying those portions of the record it believes demonstrate the "absence of a genuine issue of material fact." Lincoln Gen. Ins. Co. v. Reyna , 401 F.3d 347, 349 (5th Cir. 2005). The moving party may meet its burden "by pointing out ‘the absence of evidence supporting the nonmoving party's case.' " Duffy v. Leading Edge Products, Inc. , 44 F.3d 308, 312 (5th Cir. 1995) (quoting Skotak v. Tenneco Resins, Inc. , 953 F.2d 909, 913 (5th Cir. 1992) ). If the movant satisfies its burden, the non-moving party must present specific facts which show "the existence of a genuine issue concerning every essential component of its case." Am. Eagle Airlines, Inc. v. Air Line Pilots Ass'n, Int'l , 343 F.3d 401, 405 (5th Cir. 2003) (citation and internal quotation marks omitted); see also Lincoln Gen. Ins. Co. , 401 F.3d at 349. At the summary judgment stage, the non-movant cannot meet its burden with "conclusory allegations" or "unsubstantiated assertions."

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