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Century Sur. Co. v. Club Adventure Learning Ctr. LLC

United States District Court, W.D. Texas, El Paso Division
May 22, 2023
674 F. Supp. 3d 362 (W.D. Tex. 2023)

Opinion

CAUSE NO. EP-22-CV-213-KC

2023-05-22

CENTURY SURETY COMPANY, Plaintiff, v. CLUB ADVENTURE LEARNING CENTER LLC; JGDG Enterprises, LLC; Erika Gonzalez; Deborah Gonzalez; Jessica Zavala; and Dania E. Aguero, Defendants.

Summer L. Frederick, Robert J. Witmeyer, Cooper & Scully, P.C., Dallas, TX, for Plaintiff. Robert E. Booth, Mills Shirley LLP, Galveston, TX, for Defendants Club Adventure Learning Center, LLC, JGDG Enterprises, LLC, Erika Gonzalez, Deborah Gonzalez. Alexander E. Hilliard, Michael E. Richardson, Hilliard Martinez Gonzales, LLP, Corpus Christi, TX, Marion Magdalene Reilly, Martinez Reilly PLLC, San Antonio, TX, for Defendant Dania E. Aguero.


Summer L. Frederick, Robert J. Witmeyer, Cooper & Scully, P.C., Dallas, TX, for Plaintiff. Robert E. Booth, Mills Shirley LLP, Galveston, TX, for Defendants Club Adventure Learning Center, LLC, JGDG Enterprises, LLC, Erika Gonzalez, Deborah Gonzalez. Alexander E. Hilliard, Michael E. Richardson, Hilliard Martinez Gonzales, LLP, Corpus Christi, TX, Marion Magdalene Reilly, Martinez Reilly PLLC, San Antonio, TX, for Defendant Dania E. Aguero. ORDER Kathleen Cardone, Judge

On this day, the Court considered Century Surety Company's ("Century") Motion for Summary Judgment ("Motion"), ECF No. 26. For the reasons below, the Motion is DENIED.

I. BACKGROUND

The following facts are undisputed. Defendant Jessica Zavala was an employee of Defendant Club Adventure Learning Center LLC ("Club Adventure"). Proposed Undisputed Facts ("PUF") ¶ 2, ECF No. 27. While working there, she took care of K.M., Defendant Dania Aguero's three-year-old son. PUF ¶¶ 1-2. In July 2021, Zavala allegedly injured K.M., leading Aguero to contact the Texas Department of Family and Protective Services ("DFPS"), which investigated the incident. PUF ¶¶ 3, 6, 10. In a letter to Club Adventure, Aguero alleged that Zavala "violently grabbed K.M.'s leg and dragged him across the [ ] floor . . . causing severe physical injuries." PUF ¶¶ 4-6 (footnote omitted).

Defendants deny in part some statements in Plaintiff's Proposed Undisputed Facts, ECF No. 27. See generally Resp. to Proposed Undisputed Facts ("PUF Resp."), ECF No. 29. But Defendants admit all of the facts on which the Court relies to adjudicate Century's Motion. See id.

In August 2021, Aguero filed a lawsuit in state court (the "State Case"), bringing various negligence claims against Club Adventure, Zavala, and two other Club Adventure employees. PUF ¶ 8; see generally PUF Ex. C ("Pl.'s Orig. Pet."), ECF No. 27-3. In the Original Petition, Aguero repeated her allegations from the letter to Club Adventure—that Zavala "violently grabbed K.M.'s leg and dragged him across the carpeted floor . . . causing severe physical injuries." PUF ¶ 9; Pl.'s Orig. Pet. ¶ 11. Aguero further alleged that DFPS was investigating "for the physical abuse of K.M." PUF ¶ 9; Pl.'s Orig. Pet. ¶ 12. She also claimed that the defendants acted negligently by "[f]ailing to warn [her] of [ ] Zavala's violent and abusive nature prior to[ ] the assault of [ ] K.M." and by "allowing [ ] Zavala . . . to commit battery." Pl.'s Orig. Pet. ¶ 13.

Century issued Club Adventure general liability insurance in 2020, and it agreed to represent the defendants in the State Case. PUF ¶¶ 14, 17. The insurance policy between Century and Club Adventure (the "Policy") contains a "physical abuse endorsement" (the "Endorsement"). PUF ¶ 16. The Endorsement applies if Century provides coverage for "bodily injury arising out of [ ] actual, threatened or alleged physical or sexual abuse." PUF ¶ 16. It reduces the total amount available under the Policy from $2,000,000 to $100,000. PUF ¶ 16; PUF Ex. D-1 ("Policy"), at 16, ECF No. 27-5. And any money Century expends on either defense or indemnification erodes that figure. PUF ¶ 16. In letters to the defendants in the State Case, Century claimed that the Endorsement applied because Aguero's petition alleged abuse. See, e.g., PUF Ex. E-1, at 3, 9, ECF No. 27-7.

In her Second Amended Petition in state court, Aguero added JGDG Enterprises LLC ("JGDG") as a fifth defendant. See PUF Ex. H, at 1-2, ECF No. 27-18. JGDG is also insured and defended by Century. See PUF ¶¶ 14, 17.

On June 16, 2022, Century filed its Complaint, ECF No. 1, in this Court. It requested a declaratory judgment that the physical abuse Endorsement applied, and that it no longer owed a duty to defend or indemnify Defendants because it had already expended $100,000 in defense costs in the State Case. Id. at 10-11; PUF ¶ 27. After Century filed this lawsuit, Aguero amended her petition in the State Case multiple times. PUF ¶ 20. The most recent amended petition, her sixth, omits any allegations of abuse, assault, battery, or intentional violence. See PUF ¶ 23; see generally PUF Ex. L ("6th Am. Pet."), ECF No. 27-22. Instead, Aguero alleges that Zavala "negligently attempted to move K.M. . . . which caused K.M. to sustain injuries and damages." PUF ¶ 23; 6th Am. Pet. ¶ 14.

Defendants deny that the Endorsement applies but admit that Century has expended $100,000. PUF Resp. ¶ 27.

On December 14, 2022, Century filed its Motion, seeking summary judgment and a declaration that it has no additional duty to defend or indemnify because the Endorsement applies, and it has already exhausted the corresponding $100,000 limit. Mot. 15. Defendants Club Adventure, JGDG, Erika Gonzalez, and Deborah Gonzalez filed their Response, ECF No. 30, and Century timely filed its Reply, ECF No. 32.

II. DISCUSSION

A. Standard

A court must enter summary judgment "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a); see Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Weaver v. CCA Indus., Inc., 529 F.3d 335, 339 (5th Cir. 2008). "A fact is 'material' if its resolution in favor of one party might affect the outcome of the lawsuit under governing law." Sossamon v. Lone Star State of Tex., 560 F.3d 316, 326 (5th Cir. 2009) (quoting Hamilton v. Segue Software, Inc., 232 F.3d 473, 477 (5th Cir. 2000) (per curiam)). A dispute about a material fact is genuine only "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Ellison v. Software Spectrum, Inc., 85 F.3d 187, 189 (5th Cir. 1996).

"[The] party seeking summary judgment always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact." Celotex, 477 U.S. at 323, 106 S.Ct. 2548; Wallace v. Tex. Tech Univ., 80 F.3d 1042, 1046-47 (5th Cir. 1996). To show the existence of a genuine dispute, the nonmoving party must support its position with citations to "particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations . . . , admissions, interrogatory answers, or other materials[,]" or show "that the materials cited [by the movant] do not establish the absence . . . of a genuine dispute, or that [the moving party] cannot produce admissible evidence to support the fact." Fed. R. Civ. P. 56(c).

The court resolves factual controversies in favor of the nonmoving party, but factual controversies require more than "conclusory allegations," "unsubstantiated assertions," or "a 'scintilla' of evidence." Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc). Further, when reviewing the evidence, the court must draw all reasonable inferences in favor of the nonmoving party, and may not make credibility determinations or weigh evidence. Man Roland, Inc. v. Kreitz Motor Express, Inc., 438 F.3d 476, 478-79 (5th Cir. 2006) (citing Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150, 120 S.Ct. 2097, 147 L.Ed.2d 105 (2000)). Thus, the ultimate inquiry in a summary judgment motion is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson, 477 U.S. at 251-52, 106 S.Ct. 2505.

B. The eight-corners rule

In this diversity suit, the Court applies the substantive law of the State of Texas. State Farm Lloyds v. Richards, 966 F.3d 389, 392 (5th Cir. 2020) (citing Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523, 527 (5th Cir. 2004)); Compl. ¶ 8. "And under Texas's well-established eight-corners rule, an insurer's 'duty to defend is determined by the claims alleged in the petition and the coverage provided in the policy.' " State Farm Lloyds, 966 F.3d at 392 (quoting Pine Oak Builders, Inc. v. Great Am. Lloyds Ins. Co., 279 S.W.3d 650, 654 (Tex. 2009)). Courts "resolve all doubts regarding the duty to defend in favor of the [insured]." Northfield, 363 F.3d at 528 (quoting King v. Dall. Fire Ins. Co., 85 S.W.3d 185, 187 (Tex. 2002)). Or as the Fifth Circuit has pithily stated, "[w]hen in doubt, defend." Windermere Oaks Water Supply Corp. v. Allied World Specialty Ins. Co., 67 F.4th 672, 674-75 (5th Cir. May 9, 2023) (quoting Gore Design Completions, Ltd. v. Hartford Fire Ins. Co., 538 F.3d 365, 369 (5th Cir. 2008)).

Under the eight corners rule, the Court "consult[s] the latest amended pleading" in the underlying lawsuit. Northfield, 363 F.3d at 528 (first citing Canutillo Indep. Sch. Dist. v. Nat'l Union Fire Ins. Co., 99 F.3d 695, 701 (5th Cir. 1996); and then citing Guar. Nat'l Ins. Co. v. Vic Mfg. Co., 143 F.3d 192, 194 (5th Cir. 1998)). The rule "focus[es] . . . on the alleged facts, not on the asserted legal theories." Id. (citing St. Paul Fire & Marine Ins. Co. v. Green Tree Fin. Corp.-Tex., 249 F.3d 389, 392 (5th Cir. 2001)). It does so without considering "the truth or falsity of the allegations." Ooida Risk Retention Grp., Inc. v. Williams, 579 F.3d 469, 472 (5th Cir. 2009) (citing Mid-Continent Cas. Co. v. JHP Dev., Inc., 557 F.3d 207, 212 (5th Cir. 2009)). Indeed, "[f]acts ascertained before suit, developed in the process of litigation, or determined by the ultimate outcome of the suit do not affect the duty to defend." Northfield, 363 F.3d at 528 (citing Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d 819, 829 (Tex. 1997)).

1. Artful pleading

Century first argues that, in order to determine whether the Endorsement applies, the Court should look to the Original Petition, not the latest one, because Aguero engaged in artful pleading by omitting allegations of intentional abuse and replacing them with allegations of negligence. Mot. 8-12. If the Court looks to the Original Petition, Century says, it is clear that Aguero's allegations fall under the physical abuse Endorsement. See id. at 11-12.

"[C]ourts may consider extrinsic evidence that the insured and a third party suing the insured colluded to make false representations of fact to secure a defense and create coverage where it would not otherwise exist." Monroe Guar. Ins. Co. v. BITCO Gen. Ins. Corp., 640 S.W.3d 195, 199 (Tex. 2022) (citing Loya Ins. Co. v. Avalos, 610 S.W.3d 878, 879 (Tex. 2020)). But "[a]rtful pleading, absent evidence of collusion between the third-party claimant and the insured, does not create an exception to the general [eight-corners] rule." Liberty Surplus Ins. Corp. v. Allied Waste Sys., Inc., 758 F. Supp. 2d 414, 420 (S.D. Tex. 2010) (citing GuideOne Elite Ins. Co. v. Fielder Rd. Baptist Church, 197 S.W.3d 305, 311 (Tex. 2006)); see also In re Tex. Ass'n of Pub. Sch. Prop. & Liab. Fund, 598 B.R. 570, 581 (W.D. Tex. 2019) ("[T]he Court is aware of no such [artful pleading] exception.").

The Texas Supreme Court established the collusion exception in Avalos. See 610 S.W.3d at 881. There, a woman had car insurance which excluded her husband. Id. at 880. Her husband crashed into another car, and the woman, her husband, and the other car's passengers all agreed to lie to the insurer and tell the company that the woman had been driving. Id. But the woman later admitted the truth to her attorney and in a deposition. Id. The court held it was appropriate to consider extrinsic evidence because "the record show[ed] conclusively that the[ ] parties to the underlying case conspired to lie . . . to trigger insurance coverage." Id. at 882.

But absent such glaring evidence, courts have rejected calls to infer collusion from "artful" amendments to the underlying pleadings that appear to have been drafted with an eye towards insurance coverage. In Northfield, for example, the Fifth Circuit considered the latest petition, despite strong indications that the plaintiffs in the underlying action had amended their petition to avoid the policy's exclusions. See 363 F.3d at 535. There, a couple sued a childcare company after one of its employees was convicted for murdering their child. Id. at 525-26. But the childcare company's insurance policy did not cover damages caused by "criminal acts" and "physical abuse." Id. at 527. And after the plaintiffs amended their petition to remove allegations about physical abuse and the employee's murder conviction, the insurance company argued the eight-corners rule should not apply—the plaintiffs, the insurer contended, were improperly attempting to allege their way into insurance coverage. See id. at 526, 533, 535. But despite the changes to the petition and the insurer's argument, the court disregarded the "facts the previous versions of the[ ] petition alleged" and considered only the latest pleading. Id. at 535.

Century claims that the Fifth Circuit established an artful pleading exception in Western Heritage Insurance Co. v. River Entertainment, 998 F.2d 311 (5th Cir. 1993). Mot. 8-9. It is true that, in that case, the Fifth Circuit noted how "obvious [it was] that the [state-court plaintiffs] deleted [allegations] in their amended complaint . . . in order to avoid the policy's exclusionary provisions." 998 F.2d at 313. It is also true that the Fifth Circuit affirmed the lower court's decision to look beyond the latest pleading. Id. at 314. But the Fifth Circuit did not allow an exception to the eight-corners rule because the plaintiffs amended their petition to avoid the policy's exclusions. Id. at 314-15. Instead, the court looked beyond the latest petition only because the allegations therein were too vague to determine whether the policy applied. Id. Thus, Western Heritage did not establish an artful pleading rule as Century claims. See id. The decision merely reflects a different, well-established exception to the eight-corners rule, which the Court discusses below.

At least one court in this district has considered the original petition instead of the latest one, in part because of evidence of artful pleading. See Nautilus Ins. Co. v. Tex. State Sec. & Patrol, No. CIV. SA-09-CA-390-OG, 2010 WL 3239157, at *6-7 (W.D. Tex. June 8, 2010) (citing Tri-Coastal Contractors, Inc. v. Hartford Underwriters Ins. Co., 981 S.W.2d 861, 863 (Tex. App. 1998)), R&R adopted, No. SA-09-CA-390-OG, 2010 WL 3239159 (W.D. Tex. July 13, 2010). Yet this conclusion is inconsistent with the Fifth Circuit's decision in Northfield to consider the latest petition, despite evidence of artful pleading. See 363 F.3d at 535. The Nautilus court's conclusion is also inconsistent with the Texas Supreme Court's decision in Avalos, which requires evidence of collusion among the parties to the underlying suit—not just suspicious amendments to the pleadings—before a court may look beyond the latest petition. See 610 S.W.3d at 882. Indeed, neither the Fifth Circuit nor Texas courts have adopted an exception to the eight-corners rule based on artful pleading alone. See In re Tex. Ass'n of Pub. Sch. Prop. & Liab. Fund, 598 B.R. at 581; Liberty Surplus Ins. Corp., 758 F. Supp. 2d at 420.

Accordingly, because there is no evidence of collusion between Aguero and the defendants in the State Case, Aguero's supposed artful pleading does not warrant a departure from the eight-corners rule. See Northfield, 363 F.3d at 535; Liberty Surplus, 758 F. Supp. 2d at 420.

2. Extrinsic evidence

Century next argues that the Court must look beyond the Sixth Amended Petition because the allegations in that petition are too vague to determine whether the Endorsement applies. Mot. 12-14. Century urges the Court to consider documents from DFPS's investigation that, it says, discuss Aguero's abuse allegations and thus trigger the Endorsement. Id. at 13-14.

a. When courts consider extrinsic evidence

The eight-corners rule "is not absolute." Monroe, 640 S.W.3d at 199. If "the application of the eight-corners rule, due to a gap in the plaintiff's pleading, is not determinative of whether coverage exists, Texas law permits consideration of extrinsic evidence." BITCO Gen. Ins. Corp. v. Monroe Guar. Ins. Co., 31 F.4th 325, 330-31 (5th Cir. 2022) (quoting Monroe, 640 S.W.3d at 203). For the Court to consider extrinsic evidence, three conditions must be met: The evidence must "(1) go[ ] solely to an issue of coverage and [ ] not overlap with the merits of liability, (2) [ ] not contradict facts alleged in the pleading, and (3) conclusively establish[ ] the coverage fact to be proved." Id. (quoting Monroe, 640 S.W.3d at 203). There is only a gap in the plaintiff's pleading if it "[does not] contain the facts necessary to resolve the question of whether the claim is covered" or excluded. See Monroe, 640 S.W.3d at 202 (first citing Ooida, 579 F.3d at 476; and then citing Richards v. State Farm Lloyds, 597 S.W.3d 492, 500 (Tex. 2020)).

In cases involving injuries, such a gap exists when the petition does not allege how the injury occurred. See Northfield, 363 F.3d at 535; Nautilus, 2010 WL 3239157, at *6. For instance, in Nautilus, a security guard shot a bar patron, and the patron subsequently sued the guard and his employer in state court. 2010 WL 3239157, at *2. In federal court, the insurer claimed it had no duty to defend, in part because the policy covered injuries caused by "accident[s]," not injuries caused by the intentional torts "of assault [and] battery." Id. at *2, 6. Considering the operative petition, the court noted that it "[did] not allege the manner in which [the] injuries were inflicted, only that [the guard] caused them." Id. at *6. And because it was unclear from the petition whether the policy's accident coverage or its intentional tort exclusion applied, the court looked to extrinsic evidence. Id.

As discussed, the Court finds the Nautilus court's artful pleading analysis inconsistent with Fifth Circuit and Texas Supreme Court precedent, and thus, unpersuasive. However, the Nautilus court's gap-in-the-pleadings analysis is sound, and the factual similarities between Nautilus and this case provide for a helpful illustration.

In Northfield, by contrast, the petition was clear, so the Fifth Circuit did not consider extrinsic evidence. 363 F.3d at 535. There, a child was killed by her caretaker, her caretaker was convicted of murder, and her parents sued the caretaker's employer in state court. Id. at 525-26. In federal court, the employer's insurer claimed it had no duty to defend because the policy covered injuries caused by negligence and excluded those caused by "criminal acts and physical [ ] abuse." Id. at 527 (quotation marks omitted). But the operative petition alleged the injury occurred because of negligence or recklessness, without referring to criminal or abusive behavior. Id. at 526, 535. The court thus concluded that "the [operative] petition did not fail to explain what factually had happened [ ] to result in [the child's] death." Id. at 533 n.6. Instead, "it [was] clearly possible to discern whether coverage [was] [ ] implicated" and extrinsic evidence was therefore unnecessary. Id. at 535.

b. Whether there is a gap in the pleading

Like in Northfield, the Sixth Amended Petition contains allegations about how K.M.'s injuries occurred—because Zavala "negligently attempted to move [him]." 6th Am. Pet. ¶ 14. Unlike in Northfield and Nautilus, however, the scope of the Endorsement's coverage is not immediately obvious. See 363 F.3d at 527; 2010 WL 3239157, at *6. The Endorsement applies to "bodily injury arising out of [ ] [a]ny actual, threatened or alleged physical [ ] abuse." PUF ¶ 16 (internal quotation marks omitted). Yet neither the Endorsement nor the rest of the Policy defines "abuse" or states the requisite level of culpability for behavior to rise to the level of "abuse." See PUF ¶ 16; Policy 29-32, 56-57. So, to determine whether the Sixth Amended Petition "contain[s] the facts necessary to resolve . . . whether the claim is covered" by the Endorsement, the Court must first determine what, exactly, the Endorsement covers—namely, whether "abuse" encompasses negligence. See Monroe, 640 S.W.3d at 202.

i. Interpreting terms not defined by the Policy

"Because the [P]olicy does not define" abuse, the Court "must give [it] its common, ordinary meaning." Anadarko Petroleum Corp. v. Hous. Cas. Co., 573 S.W.3d 187, 192 (Tex. 2019) (citing RSUI Indem. Co. v. The Lynd Co., 466 S.W.3d 113, 118 (Tex. 2015)). To discern the ordinary meaning of undefined terms in insurance contracts, Texas courts "look first to dictionary definitions." Id. (citing Tex. State Bd. of Exam'rs of Marriage & Fam. Therapists v. Tex. Med. Ass'n, 511 S.W.3d 28, 35 (Tex. 2017)). Even when dictionary definitions are clear, courts next consult legal authorities like statutes and courts decisions. See Pharr-San Juan-Alamo Indep. Sch. Dist. v. Tex. Pol. Subdivisions Prop./Cas. Joint Self Ins. Fund, 642 S.W.3d 466, 474-75 (Tex. 2022); Tex. State Bd. of Exam'rs, 511 S.W.3d at 35-37. Finally, courts consider the term within the context of the entire insurance policy. See Anadarko, 573 S.W.3d at 193; RSUI Indem. Co., 466 S.W.3d at 118. "If only one [ ] construction is reasonable, the policy is unambiguous," and the Court gives the term that meaning. See RSUI Indem. Co., 466 S.W.3d at 118 (citing Grain Dealers Mut. Ins. Co. v. McKee, 943 S.W.2d 455, 459 (Tex. 1997)).

Though these are not, strictly speaking, within the eight corners of the Policy and the Sixth Amended Petition, they are not considered extrinsic evidence under Texas law. See Pharr-San Juan-Alamo Indep. Sch. Dist. v. Tex. Pol. Subdivisions Prop./Cas. Joint Self Ins. Fund, 642 S.W.3d 466, 478 (Tex. 2022).

If ambiguity persists, the Court "must resolve [ ] uncertainty [in the Policy] by adopting the construction that most favors the insured," just as it "resolve[s] all doubts regarding the duty to defend in favor of the duty." Northfield, 363 F.3d at 528 (quoting King, 85 S.W.3d at 187); RSUI Indem. Co., 466 S.W.3d at 118 (quoting Nat'l Union Fire Ins. Co. of Pittsburgh v. Hudson Energy Co., 811 S.W.2d 552, 555 (Tex. 1991)). Indeed, when "construing a limitation on coverage" the Court must adopt any reasonable interpretation that favors the insured, "even if the construction urged by the insurer appears to be more reasonable." RSUI Indem. Co., 466 S.W.3d at 118 (quoting Nat'l Union Fire Ins. Co., 811 S.W.2d at 555).

ii. Whether "abuse" includes negligence

Employing the same dictionaries as Texas courts, the relevant definitions of abuse fall into three categories: First, there are definitions that do not clearly include or exclude negligence. For instance, Dictionary.com defines abuse as "bad or improper treatment; maltreatment." Abuse, Dictionary.com, https://www.dictionary.com/browse/abuse (last visited May 19, 2023). Its definitions of bad and improper do not state whether they include negligence. See Bad, Dictionary.com, https://www.dictionary.com/browse/bad (last visited May 19, 2023); Improper, Dictionary.com, https://www.dictionary.com/browse/improper (last visited May 19, 2023). And its definition of maltreatment does not settle whether abuse includes negligence either. Maltreatment is defined as "bad[ ], cruel[ ], or rough[ ]" behavior. Maltreatment, Dictionary.com, https://www.dictionary.com/browse/maltreatment (last visited May 19, 2023). While cruel is defined as "willfully or knowingly causing pain or distress," the definitions of bad and rough do not include a level of culpability. See Cruel, Dictionary.com, https://www.dictionary.com/browse/cruel (last visited May 19, 2023); Bad, Dictionary.com, https://www.dictionary.com/browse/bad (last visited May 19, 2023); Rough, Dictionary.com, https://www.dictionary.com/browse/rough (last visited May 19, 2023).

See, e.g., Pharr-San Juan-Alamo, 642 S.W.3d at 474 (considering Dictionary.com, Webster's New Collegiate Dictionary, Merriam-Webster.com, and CollinsDictionary.com); Anadarko, 573 S.W.3d at 192 (considering Black's Law Dictionary and the American Heritage Dictionary).

Second, there are definitions that include negligence. For example, Black's Law Dictionary defines abuse, in "child abuse," as "[i]intentional or neglectful physical [ ] harm" and states that "[c]hild abuse can be either intentional or negligent." Child Abuse, Black's Law Dictionary (11th ed. 2019). The American Heritage Dictionary defines abuse as "[p]hysical maltreatment or violence." Abuse, American Heritage Dictionary, https://ahdictionary.com/word/search.html?q=abuse (last visited May 19, 2023). And the definition of maltreatment points back to the verb form of abuse, which is defined as "hurt[ing] or injur[ing] by maltreatment; ill-use: [as in] animals that were abused by a negligent owner." Id.; Maltreat, American Heritage Dictionary, https://ahdictionary.com/word/search.html?q=maltreatment + (last visited May 19, 2023).

Third, there are definitions that require abuse to be intentional, although they do so indirectly. Like the American Heritage Dictionary, Merriam-Webster defines abuse as "physical maltreatment," which again refers back to the verb abuse. Abuse, Merriam-Webster Dictionary, https://www.merriam-webster.com/dictionary/abuse#dictionary-entry-1 (last visited May 19, 2023); Maltreat, Merriam-Webster, https://www.merriam-webster.com/dictionary/maltreatment (last visited May 19, 2023). It defines abuse as "us[ing] or treat[ing] so as to injure or damage." Abuse, Merriam-Webster Dictionary, https://www.merriam-webster.com/dictionary/abuse#dictionary-entry-1 (last visited May 19, 2023) (emphasis added). And it defines "so as to" as "in order to," which itself means "for the purpose of"—thus defining abuse as using or treating for the purpose of injuring or damaging. See id.; So, Merriam-Webster Dictionary, https://www.merriam-webster.com/dictionary/so (last visited May 19, 2023); Order, Merriam-Webster Dictionary, https://www.merriam-webster.com/dictionary/order (last visited May 19, 2023).

Merriam-Webster also contains a legal definition of abuse which does not include a level of culpability: "the infliction of physical or emotional injury." Abuse, Merriam-Webster Dictionary, https://www.merriam-webster.com/dictionary/abuse#legalDictionary (last visited May 19, 2023).

Likewise, Collins defines abuse as "cruel and violent treatment." Abuse, Collins English Dictionary, https://www.collinsdictionary.com/us/dictionary/english/abuse (last visited May 19, 2023). And it defines cruel as "deliberately cau[sing] pain or distress" and violent as "us[ing] physical force [ ] to hurt, injure, or kill other people"—thereby defining abuse as treatment that deliberately causes pain or distress and uses physical force to hurt, injure, or kill. Id.; Cruel, Collins English Dictionary, https://www.collinsdictionary.com/us/dictionary/english/cruel (last visited May 19, 2023); Violent, Collins English Dictionary, https://www.collinsdictionary.com/us/dictionary/english/violent (last visited May 19, 2023). In sum, dictionary definitions point in multiple directions and do not resolve the level of culpability denoted by "abuse."

The Court next considers how "abuse" is defined under Texas law. See Pharr-San Juan-Alamo, 642 S.W.3d at 474-75; Tex. State Bd. of Exam'rs, 511 S.W.3d at 35-37. Chapter 261 of the State's Family Code applies to investigations of abuse by DFPS. See Tex. Fam. Code § 261.001(1)-(2). And section 261.401 specifically applies to abuse investigations in licensed childcare facilities. Id. § 261.401(b). Until 2017, section 261.401 contained a definition of abuse specific to the context of investigations at licensed facilities, "notwithstanding" the definition that applies to the rest of Chapter 261. See Tex. Fam. Code § 261.401(a)(1) (repealed 2017). That definition included only "intentional, knowing, or reckless act[s] or omission[s]" Id. And it placed "negligent act[s] or omission[s]" under its definition of "[n]eglect." Id. § 261.401(a)(3). But in 2017, the legislature repealed the provision of section 261.401 defining abuse "notwithstanding" the Chapter's general definitions. See Act effective Sept. 1, 2017, ch. 319, sec. 32, Tex. Fam. Code § 261.401; Act effective Sept. 1, 2017, ch. 1136, sec. 14, Tex. Fam. Code § 261.401. So by the time the Policy was signed in 2020, those general definitions, found in section 261.001 of the statute, applied to abuse investigations in childcare facilities. See Tex. Health & Hum. Servs. Comm'n v. Davis, No. 07-21-00092-CV, 2022 WL 569950, at *4-5 (Tex. App. Feb. 23, 2022); Policy 4.

Section 261.001 defines abuse with a disjunctive list, many items of which are irrelevant here. See, e.g., Tex. Fam. Code § 261.001(1)(M) (defining abuse to include "forcing or coercing a child to enter into a marriage"). None of these definitions explicitly include or exclude "negligent" conduct. See id. § 261.001(1)(A)-(M). The definition most relevant for determining the meaning of "physical abuse" in the Policy describes abuse as "physical injury that results in substantial harm . . . excluding an accident or reasonable discipline." Id. § 261.001(1)(C). But the provision does not define what counts as an "accident." See id. So from section 261.001's definition of abuse, alone, the requisite level of culpability is not clear.

The entire definition reads, "physical injury that results in substantial harm to the child, or the genuine threat of substantial harm from physical injury to the child, including an injury that is at variance with the history or explanation given and excluding an accident or reasonable discipline by a parent, guardian, or managing or possessory conservator that does not expose the child to a substantial risk of harm." Id.

When a statute is unclear, Texas courts employ canons of construction, among them the canon against surplusage. See Waak v. Rodriguez, 603 S.W.3d 103, 108 (Tex. 2020); City of Rockwall v. Hughes, 246 S.W.3d 621, 626 (Tex. 2008) (citations omitted). Under that canon, "[no term] should needlessly be given an interpretation that causes it to duplicate another provision." Hirani v. State, No. 02-17-00391-CR, 2018 WL 3385534, at *3 (Tex. App. July 12, 2018) (quoting Antonin Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 174 (2012)). And here, another provision of section 261.001 defines "negligent act[s] or omission[s] by an employee . . . working under the auspices of a [childcare] facility . . . that causes . . . substantial . . . physical injury to . . . a child" as "[n]eglect," not abuse. Id. § 261.001(4)(A)(iv). If neglect under section 261.001 includes negligent acts by employees of licensed childcare facilities that cause substantial physical injuries, then under the canon against surplusage, section 261.001's definition of abuse should be construed to exclude such negligent actions, so as not to be rendered duplicative. See Hirani, 2018 WL 3385534, at *3.

Complicating matters are agency regulations interpreting section 261.001's definitions of abuse. See 40 Tex. Admin. Code §§ 707.781, 707.789. Like the statute, section 707.789 defines abuse as "physical injury that results in substantial harm." Tex. Fam. Code § 261.001(1)(C); 40 Tex. Admin. Code § 707.789(a)(1). And like the statute, section 707.789's definition of abuse excludes "accident[s]." Tex. Fam. Code § 261.001(1)(C); 40 Tex. Admin. Code § 707.789(a)(1). But whereas the statute does not define "accidents," the regulation does—as "unforeseen . . . injur[ies] [caused] despite exercising the care and diligence that a reasonable and prudent person would exercise." See 40 Tex. Admin Code § 707.789(b)(1). Accidents—which are unforeseen injuries that occur despite exercising the care of a reasonable and prudent person—thus contrast with negligence, which entails foreseeable injuries that stem from "[t]he failure to exercise the standard of care [of] a reasonably prudent person." Negligence, Black's Law Dictionary (11th ed. 2019) (emphasis added); see also W. Invs., Inc. v. Urena, 162 S.W.3d 547, 551 (Tex. 2005). In sum, because abuse in section 707.789 includes all substantial harms except for accidents, and because accidents do not include negligent acts, abuse under section 707.789 would appear to encompass negligent acts.

But another regulation that applies specifically to abuse investigations at licensed childcare facilities pursuant to section 261.401 of the statute provides a different definition of abuse. 1 Tex. Admin. Code §§ 351.501(1), 351.503(a). That regulation defines abuse as "any intentional, knowing, or reckless act or omission." Id.§ 351.501(1). And, like section 261.001 of the statute, it places "negligent act[s] or omission[s]" only under its definition of "[n]eglect." Id. § 351.501(9).

To be sure, this regulatory definition tracks the separate definition of abuse that was codified in section 261.401 of the Texas Family Code prior to its repeal in 2017, which, at first blush, seems to undermine the validity of the regulation. But the regulation itself has not been repealed. Nor does it conflict with the plain text of the statute, which would render it invalid. See R.R. Comm'n v. Tex. Citizens for a Safe Future & Clean Water, 336 S.W.3d 619, 624 & n.6 (Tex. 2011). Quite the opposite. As discussed, under the canon against surplusage, the best reading of section 261.001 excludes negligent acts from its definition of abuse, by explicitly including such conduct in its definition of "neglect." The regulation, section 351.501(1), only makes the exclusion of negligent misconduct from abuse more explicit, by limiting abuse to "intentional, knowing, or reckless" behavior. Id. Because the regulatory and statutory definitions of abuse can be read in harmony, the regulation is not invalid. See R.R. Comm'n, 336 S.W.3d at 624 & n.6.

In addition to chapter 1, section 351.501(1), another regulation also defines abuse as "any intentional, knowing, or reckless act or omission" in the context of licensed childcare facilities. 40 Tex. Admin. Code §§ 745.8551, 745.8557. The Health and Human Services Commission recently proposed repealing that regulation, section 745.8557, but its proposal has not been accepted yet. See 48 Tex. Reg. 1538-39 (Mar. 17, 2023), https://www.sos.state.tx.us/texreg/pdf/backview/0317/0317is.pdf. As of the date of this Order, the Court is aware of no proposal to repeal section 351.501(1). One possible explanation for this discrepancy is that section 745.8557 explicitly holds itself out as "further describ[ing] the definition[ ] of abuse . . . as found in . . . § 261.401," a definition that was repealed by the legislature in 2017. See 40 Tex. Admin. Code § 745.8551. It is perhaps unsurprising, then, that the agency would seek to repeal a regulation that explicitly references and engages with a statutory definition that no longer exists. But for its part, section 351.501(1) does not mention or purport to further describe the repealed definition. Instead, it provides a definition of abuse as that term is used in accompanying regulations, which, in turn, pertain to investigations of licensed childcare facilities under section 261.401. 1 Tex. Admin Code §§ 351.501; 351.503(a). Such investigations continue to occur, and the rest of section 261.401 remains on the books, following the repeal of the subsection defining abuse in 2017. Thus, while the repeal clearly abrogated section 745.8557, it would not render section 351.501(1) invalid unless that regulation were otherwise inconsistent with the rest of the statute. See R.R. Comm'n v. Tex. Citizens for a Safe Future & Clean Water, 336 S.W.3d 619, 624 & n.6 (Tex. 2011). As discussed above, it is not.

In sum, relevant definitions of abuse under Texas law do not conclusively resolve whether abuse includes injuries caused by negligent misconduct. The statute, section 261.001, appears to exclude negligence from abuse by situating negligent misconduct under neglect instead, while a regulation interpreting section 261.001 appears to include negligence within abuse, in a roundabout fashion through its definition of accidents. Finally, a regulation that governs investigations of licensed childcare facilities under section 261.401 explicitly excludes negligent conduct from the realm of abuse. Thus, like dictionaries, Texas law provides competing levels of culpability for abusive behavior.

The Court finally considers the term in the context of the entire Policy. See Anadarko, 573 S.W.3d at 193. The Policy's only uses of "abuse" are in a provision that excludes coverage for "actual or threatened abuse" and in the Endorsement. See Policy 36, 56-57. The first exclusion does not elucidate the term's meaning. Id. at 36. But the Endorsement provides some context by describing Club Adventure as a "licensed day care provider" and a "licensed day care facility." Id. at 56-57. But this does not resolve the ambiguity, because the competing regulatory definitions of abuse both apply specifically in the context of licensed childcare facilities. Section 351.501—which excludes negligence from its definition of abuse—applies to abuse committed by those "working under the auspices of a facility," which it defines as "an entity licensed . . . by a state agency that provides care and services to a child." 1 Tex. Admin. Code § 351.501(1), (6).

For its part, section 707.789—which includes negligence—applies to abuse committed "in a child care operation." 40 Tex. Admin. Code § 707.781. A child care operation is "a facility . . . subject to regulation . . . under Chapter 42 [of the] Human Resources Code." Id. § 707.703. And the Human Resources Code regulates "child-care facilities," which are "facilit[ies] licensed . . . to provide [ ] care . . . for a child." Tex. Hum. Res. Code §§ 42.001; 42.002(3). Thus, both section 351.501, which excludes negligence from its definition of abuse, and section 707.789, which includes it, appear to apply in the specific context for which the Policy was written—i.e., a licensed childcare facility.

Therefore, considering the term "physical abuse" within the context of the larger Policy does not provide a basis for reconciling the competing definitions of abuse found in dictionaries and Texas law. Because the term remains ambiguous, the Court "must resolve the uncertainty by adopting the construction that most favors the insured." See RSUI Indem. Co., 466 S.W.3d at 118 (quoting Nat'l Union Fire Ins. Co., 811 S.W.2d at 555). If abuse includes negligence, then the petition's allegations of negligence fall under the physical abuse Endorsement. See 6th Am. Pet. ¶ 14; PUF ¶ 16. And the Endorsement reduces the Policy's coverage to $100,000. See PUF ¶ 16. Thus, the interpretation that most favors coverage is the definition of abuse that does not include negligence.

With that conclusion in view, it is clear there is no gap in the pleading. The physical abuse Endorsement is best read to apply only to allegations of intentional, knowing, or reckless misconduct, and the Sixth Amended Petition includes allegations of merely negligent misconduct. 6th Am. Pet. ¶ 14. Because there is no gap in the pleadings, the Court does not consider extrinsic evidence. See Monroe, 640 S.W.3d at 202.

Because the Court does not consider extrinsic evidence, it need not address Century's evidentiary objections. See Reply 2-4.

C. Whether the endorsement applies and whether Century has a duty to defend

Considering only the eight corners of the Policy and Sixth Amended Petition, the Court concludes that the Endorsement does not apply. The Endorsement covers "physical abuse," which, as just explained, must be interpreted to require a level of culpability greater than negligence. PUF ¶ 16. The latest pleading, however, alleges negligence. 6th Am. Pet. ¶ 14. So the allegations in Aguero's petition do not trigger the Endorsement. And because the Endorsement does not apply, its $100,000 coverage limit does not apply either. Thus, Century has not exhausted the Policy's limit by expending $100,000 in defense costs, nor is it relieved of its duties to defend and indemnify based on these expenditures. Accordingly, Century is not entitled to summary judgment, and the Motion is denied.

Indeed, based on the record before the Court, it appears that Century does have a duty to defend, as a matter of law. "If the underlying pleading alleges facts that may fall within the scope of coverage, the insurer has a duty." State Farm Lloyds, 966 F.3d at 393 (quoting Ooida, 579 F.3d at 472). And Aguero alleges facts that seem to fall within the Policy. Her most recent petition states that Zavala "caused K.M. to sustain injuries and damages." 6th Am. Pet. ¶ 14 (emphasis added). The Policy covers "sums that the insured becomes legally obligated to pay as damages because of 'bodily injury.' " Policy 17, 29 (emphasis added). And none of the Policy's exclusions appear to apply. See id. at 18-22. Thus, by the Policy's plain terms, Century seems to have a duty to defend.

It also appears that the duty to indemnify is not yet justiciable. "Texas law only considers the duty-to-indemnify question justiciable after the underlying suit is concluded, unless 'the same reasons that negate the duty to defend likewise negate any possibility the insurer will ever have a duty to indemnify.' " Northfield, 363 F.3d at 529 (quoting Farmers Tex. Cnty. Mut. Ins. Co. v. Griffin, 955 S.W.2d 81, 84 (Tex. 1997) (emphasis omitted)). Here, the duty to defend is not negated, so the duty to indemnify is not yet ripe. See, e.g., Penn-Am. Ins. Co. v. Tarango Trucking, LLC, 30 F.4th 440, 448 (5th Cir. 2022) (citing Northfield, 363 F.3d at 529).

While none of the Defendants have moved for summary judgment on Century's duty to defend, "the court may [ ] grant summary judgment for [the] non-movant," so long as it "giv[es] notice and a reasonable time to respond" to the movant. Fed. R. Civ. P. 56(f)(1); see also Celotex, 477 U.S. at 326, 106 S.Ct. 2548 ("[D]istrict courts . . . possess the power to enter summary judgments sua sponte, so long as the losing party was on notice that she had to come forward with all of her evidence."). In this context, courts regularly require parties to brief whether the insurer has a duty to defend under Rule 56(f). See, e.g., First Mercury Ins. Co. v. First Fla. Bldg. Corp., No. 8:20-CV-1929-CEH-MRM, 2022 WL 4017061, at *8 (M.D. Fla. Sept. 2, 2022); Century Sur. Co. v. Env't Prop. Investigations, Inc., No. 10-CV-01932-PAB-BNB, 2011 WL 3665406, at *4 (D. Colo. Aug. 22, 2011); Nautilus Ins. Co. v. Home Remedy Servs., LLC, No. CV H-09-3508, 2011 WL 13130886, at *1 n.1 (S.D. Tex. May 31, 2011). Similarly, here, the Court affords the parties an opportunity to brief whether, given the Court's denial of Century's Motion, an order granting summary judgment in Defendants' favor on the duty to defend is warranted.

III. CONCLUSION

For the reasons above, Century's Motion for Summary Judgment, ECF No. 26, is DENIED.

IT IS FURTHER ORDERED that Century may FILE a brief, no later than June 5 , 2023 , stating its position, if any, as to why summary judgment on the duty to defend should not be granted in favor of Defendants. Century may also state its position as to whether, to the extent it has a duty to defend, this matter should be stayed and the Court's decision on the duty to indemnify should be reserved, pending resolution of the State Case.

IT IS FURTHER ORDERED that Defendants may FILE a response brief within two weeks of the date of Century's brief.

SO ORDERED.


Summaries of

Century Sur. Co. v. Club Adventure Learning Ctr. LLC

United States District Court, W.D. Texas, El Paso Division
May 22, 2023
674 F. Supp. 3d 362 (W.D. Tex. 2023)
Case details for

Century Sur. Co. v. Club Adventure Learning Ctr. LLC

Case Details

Full title:CENTURY SURETY COMPANY, Plaintiff, v. CLUB ADVENTURE LEARNING CENTER LLC…

Court:United States District Court, W.D. Texas, El Paso Division

Date published: May 22, 2023

Citations

674 F. Supp. 3d 362 (W.D. Tex. 2023)