Opinion
No. 14-05-00486-CV
Memorandum Opinion filed January 26, 2006.
On Appeal from the 281st District Court, Harris County, Texas, Trial Court Cause No. 03-68937.
Affirmed in Part and Reversed and Remanded in Part.
Panel consists of Justices FOWLER, EDELMAN, and GUZMAN.
MEMORANDUM OPINION
In this appeal from take-nothing summary judgments granted in favor of appellees, Markel International Insurance Company, Limited ("Markel") and Sphere Drake Insurance, Limited ("Sphere Drake"), we examine whether appellees had a duty to defend and indemnify appellant, D.R. Horton — Texas, Limited ("Horton"), as an additional insured in an underlying lawsuit arising out of the construction and warranty repair of a home. Because Markel satisfied its burden of proof under the "eight corners rule" on all of Horton's claims except Horton's claims of statutory and common law misrepresentation, we affirm in part and reverse in part the trial court's judgment as to Markel. Because Sphere Drake failed to meet its burden of proof under the "eight corners rule," we reverse the trial court's judgment as to Sphere Drake.
Markel is the successor to Terra Nova Insurance Co., Ltd.; the term "Markel" is used herein to refer to both.
Sphere Drake is the successor to Odyssey Re London Ltd.; the phrase "Sphere Drake" therefore refers to both.
D.R. Horton — Texas, Limited is the successor in interest to D.R. Horton Homes, Inc.; the word "Horton" refers to both.
I. FACTUAL AND PROCEDURAL BACKGROUND
On July 31, 2002, James and Cicely Holmes filed suit against homebuilder Horton, alleging that the home they had purchased from a third party in July 2001 contained latent defects which led to the propagation of toxic mold, rendering the home uninhabitable. The Holmeses claimed that in October 2001, shortly after moving into the residence, they discovered toxic mold in the house. They further claimed that during the mold remediation process, they discovered latent defects in the construction and design of the home, particularly in connection with the chimney, the roof and vent pipes, the windows and window frames, and the flashing around the roof and chimney. The Holmeses alleged that these defects allowed water to enter the home, and that Horton had made faulty, incomplete and negligent attempts to repair these latent defects.
James and Cicely Holmes v. D.R. Horton Homes, Inc. and D.R. Horton — Texas, Limited, Cause No. 2002-38572 (280th Dist. Ct., Harris County, Tex. July 31, 2002).
Horton built the home in 1992.
Horton demanded that Markel and Sphere Drake defend it in the Holmes suit. Sphere Drake had insured independent contractor Rosendo Ramirez from September 16, 1992 through September 16, 1999, and Horton had been named on the policy as an additional insured for certain claims. Markel insured Ramirez from September 16, 1999 through September 16, 2002, and Horton was named as an additional insured for claims arising out of Ramirez's work. Although the Holmes petition does not mention Ramirez or any other subcontractor, Horton asserts that Ramirez performed the masonry work for the original construction of the Holmes residence as well as repairs performed in 1999. Horton therefore claimed that Ramirez's insurers were required to defend Horton in the Holmes suit.
During part of this time, Ramirez was insured by Odyssey Re; however, the parties do not dispute that Sphere Drake is the successor in interest to Odyssey Re.
A copy of the policy is not presented for our review.
Beginning in 1999, Ramirez was insured by Terra Nova; however, the parties agree that Markel is Terra Nova's successor in interest.
Markel did not respond to Horton's defense demand, while Sphere Drake denied coverage on the basis that the damage manifested after its coverage terminated. Horton hired its own defense counsel and settled the case for $50,000.00.
Sphere Drake reserved its rights to deny, modify, or limit coverage on other grounds, and the parties do not contend that the denial letter limits the bases for a denial of coverage by Sphere Drake.
In December 2003, Horton filed suit against Markel and Sphere Drake for reimbursement of the settlement funds and defense costs. Horton stated claims against both insurers for breach of contract, violations of the Texas Insurance Code, and misrepresentation.
On March 11, 2005, Markel filed a traditional motion for summary judgment, asking the court to find that it had no duty to defend or indemnify Horton. Sphere Drake filed a similar motion on April 1, 2005. Horton responded to Markel's motion on April 11, 2005, and pursuant to a Rule 11 agreement, responded to Sphere Drake's motion on April 13, 2005. Although the title of Horton's response to Markel's motion gave no indication that the response was combined with a motion for continuance of the April 18, 2005 hearing on Markel's summary judgment motion, the request was included under the heading "Objections" on the fourth page of the thirty-eight page response. The hearing was not continued, and the court granted both motions for summary judgment in favor of Markel and Sphere Drake on April 20, 2005.
II. ISSUES PRESENTED
On appeal, Horton seeks reversal of both summary judgments. Though Horton asserts numerous subpoints, the central issues are (a) whether Markel had a duty to defend and indemnify Horton in the Holmes suit, (b) whether Sphere Drake had a duty to defend and indemnify Horton in the Holmes suit, (c) whether the trial court improperly granted summary judgment on the Holmeses claims of fraud and misrepresentation because those claims were not asserted in Markel's motion for summary judgment, and (d) whether the trial court improperly denied Horton's motion to continue the hearing on Markel's motion for summary judgment.
III. STANDARD OF REVIEW
To be entitled to summary judgment, the movant has the burden of showing that there are no genuine issues of material fact as to one or more of the essential elements of the plaintiff's cause of action. TEX. R. CIV. P. 166(a). In reviewing the record and determining whether a material fact issue precludes summary judgment, evidence favorable to the non-movant will be taken as true, every reasonable inference must be indulged in favor of the non-movant, and any doubts must be resolved in the non-movant's favor. Id.; Nixon v. Mr. Property Mgmt. Co., 690 S.W.2d 546, 548-49 (Tex. 1985). Because the question of an insurance carrier's duty to defend under an insurance policy is a question of law, we conduct the review de novo. State Farm Gen. Ins. Co. v. White, 955 S.W.2d 474, 475 (Tex.App.-Austin 1997, no pet.).
IV. ANALYSIS
A. THE MARKEL SUMMARY JUDGMENT
In their motions for summary judgment, Markel and Sphere Drake argued inter alia that they had no duty to defend Horton in the underlying suit because the Holmes petition did not allege that Ramirez's work caused damage. Because this argument is potentially dispositive, we address it first.
1. The Duty to Defend: the "Eight Corners" Rule
An insurer's duty to defend its insured is determined by the "eight corners" rule, which requires that we compare the allegations in the petition filed against the insured with the coverage afforded by the insurance policy. King. v. Dallas Fire Ins. Co., 85 S.W.3d 185, 187 (Tex. 2002). If a petition does not allege facts within the scope of coverage, an insurer is not legally required to defend a suit against its insured. Nat'l Union Fire Ins. Co. of Pittsburgh, Pa. v. Merchants Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex. 1997) (per curiam) (citing American Physicians Ins. Exch. v. Garcia, 876 S.W.2d 843, 848 (Tex. 1994)). On the other hand, an insurer is obligated to defend a lawsuit if the facts alleged in the pleadings give rise to any claim within the coverage of the policy. Utica Nat'l Ins. Co. of Tex. v. Am. Indem. Co., 141 S.W.3d 198, 201 (Tex. 2004). "When applying the eight corners rule, we give the allegations in the petition a liberal interpretation." Merchants Fast Motor Lines, Inc., 939 S.W.2d at 141. The insurer owes a duty to defend if the third-party petition "potentially" states a claim within coverage. Utica Nat'l Ins. Co. of Tex., 141 S.W.3d at 201.
In reviewing the pleadings in light of the insurance policy's provisions, we focus on the petition's factual allegations showing the origin of the damages, and not on the legal theories alleged. Merchants Fast Motor Lines, Inc., 939 S.W.2d at 141. Although we strictly construe the pleadings against the insurer and resolve any doubt in favor of coverage, not every doubt requires resolution of the duty to defend in favor of the insured. Heyden Newport Chem. Corp. v. S. Gen. Ins. Co., 387 S.W.2d 22, 26 (Tex. 1965); Merchants Fast Motor Lines, Inc., 939 S.W.2d at 142. We will not read facts into the petition, nor will we look outside of the petition, or imagine factual scenarios which might trigger coverage. Merchants Fast Motor Lines, Inc., 939 S.W.2d at 142. Thus, the duty to defend is not affected by facts ascertained before suit or developed during the process of litigation, or by the ultimate outcome of the suit. Heyden Newport Chem. Corp., 387 S.W.2d at 25.
If an insurer has a duty to defend its insured against any claim pleaded in the petition of the underlying suit, then the insurer is required to defend its insured against all claims in that petition. See Stumph v. Dallas Fire Ins. Co., 34 S.W.3d 722, 728 (Tex.App.-Austin 2000, no pet.). Our natural starting point is therefore a review of the coverage afforded by the Markel policy.
a. The Markel Policy
Horton argues that it is an additional insured under Ramirez's commercial general liability insurance policy with Markel, and as an additional insured is entitled to indemnification and defense in the Holmes lawsuit. The policy, effective from September 16, 2001 to September 16, 2002, specifically lists Horton as an additional insured, "but only with respect to liability arising out of `[Ramirez's] work' for [Horton] by or for [Ramirez]."
b. The Holmes Petition
The factual allegations in the Holmes petition include in pertinent part:
On or about July 3, 2001, Plaintiffs James and Cicely Holmes purchased a home located at 2330 Pin Hook Ct., Seabrook, Texas, from [prior owners. Prior owners] purchased the property on or about August 17, 2000, from ["Original Purchasers"]. The original purchasers acquired the property on April 20, 1993 from D.R. Horton, which designed and built the home . . .
In October 2001, shortly after moving into the residence, the Holmes discovered mold in the home. That mold was tested and found to be of highly toxic strain, present in significant concentrations and scattered throughout various locations in the residence. As a result, and [sic] the family was ordered to vacate the home immediately and forced to obtain alternate accommodations.
Treatment of the mold and attempted remediation of the home was immediately commenced. During the course of the remediation, it was discovered that numerous latent defects existed in the construction, design and workmanship of the house. These problems include, but are not limited to, (1) problems with the flashing around the roof and chimney, and prior attempted repairs of that roof and flashing, (2) the design and construction of the chimney and attempted repairs of the chimney, and (3) construction design and workmanship of the roof and vent pipes. Also discovered were defects in the windows and window framing which facilitated water intrusion into the home and mold propagation.
As a result of these deficiencies in the design, construction and workmanship of their residence, as well as faulty, incomplete and negligent attempts to repair those defects, the Holmes have incurred substantial expenses associated with repairing the deficiencies, remediation/abatement of the mold in the residence, replacement/disposal of contaminated personal effects, relocation expenses and attorney fees. Although D.R. Horton was notified on repeated instances of the deficiencies and/or defects, D.R. Horton refused and/or failed in its attempts to make the necessary repairs in a good and workman like manner, thus causing the Holmes' damage.
. . . Defendants negligently, carelessly and wrongfully failed to use reasonable care in the construction and repair of that residence commensurate with the requirements of residential building standards of performance and failed to use proper and adequate materials in that construction and those repairs attempted. Such negligence resulted in a subsequent invasion of toxic mold contaminating the air and living environment in and around the residence rendering the structure uninhabitable and fouling the personal property of the Plaintiffs.c. Comparison of the Policy and the Pleadings
Pursuant to the eight corners rule, we compare the factual allegations of the Holmes petition with the language of the Markel policy to determine if the facts alleged in the petition give rise to any claim within the coverage of the policy. See Utica Nat'l Ins. Co. of Tex., 141 S.W.3d at 201.
The plain language of the additional insured endorsement limits Markel's liability to those claims arising out of work Ramirez performed for Horton. The Holmes petition does not list Ramirez as a defendant, does not make any reference to Ramirez, and does not allege the Holmeses were damaged by the acts or omissions of any person or entity other than Horton. Given their most liberal interpretation in favor of coverage, the factual allegations in the Holmes petition cannot be interpreted as stating a claim for damages arising from Ramirez's work.
Horton argues that because the petition is to be interpreted from the standpoint of the insured, and because we must accept the pleaded facts and the reasonable inferences from those facts, we must accept Horton's conclusion that the claims alleged by the Holmeses arise from Ramirez's work. See King, 85 S.W.3d at 188 (courts must view the event that is alleged to have caused the injury from the view point of the insured). This argument misapprehends the object of our inquiry. Our task is not to determine if the underlying facts that prompted the allegations are covered, but whether the petition alleges facts that are covered.
Horton correctly argues that we may draw inferences from the petition that may lead to a finding of coverage. An inference is a fact or proposition drawn from an admitted or otherwise proven fact. Marshall Field Stores, Inc. v. Gardiner, 859 S.W.2d 391, 400 (Tex.App.-Houston [1st Dist.] 1993, writ dism'd w.o.j.) (op. on reh'g). It is a logical consequence flowing from a fact. Id. In other words, the eight corners rule does not require us to ignore those inferences that logically flow from the facts alleged. See Allstate Ins. Co. v. Hallman, 159 S.W.3d 640, 645 (Tex. 2005) (though petition against the insured homeowner did not contend the event alleged to have caused damage was undertaken with a profit motive, the Court inferred a profit motive and found that the claims fell within a "business activity" exclusion to the policy because "[o]ne generally does not allow limestone mining with dynamite blasting to occur on his or her property without some expectation of remuneration or monetary gain"). We may not, however, rely upon facts supplied by extrinsic evidence. Argonaut SW. Ins. Co. v. Maupin, 500 S.W.2d 633, 636 (Tex. 1973) (stating "[t]he duty to defend does not depend on what the facts are, or what might be determined finally by the trier of the facts. It depends only on what the facts are alleged to be").
We recognize that some state and federal courts interpret Texas law to permit a court to consider extrinsic evidence in determining whether a petition states a covered claim. To date, however, the Texas Supreme Court has not recognized such an exception. See, e.g., Am. Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842, 847-48 (Tex. 1994) (the duty to defend "is determined solely by the allegations in the pleadings filed against him . . . If a petition does not allege facts within the scope of coverage, an insurer is not legally required to defend a suit against its insured") (emphasis added); Allstate Ins. Co. v. Hallman, 159 S.W.3d 640 (Tex. 2005) (inferring a profit motive from the nature of the activity rather than relying on extrinsic evidence of a profit motive); see also Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523, 531 (5th Cir. 2004) (concluding that the Texas Supreme Court would not recognize any exception to the strict eight corners rule). Because the duty to defend is determined by the allegations rather than the underlying facts, a party's knowledge of underlying facts does not affect that determination. See 46 TEX. JUR. 3D, INSURANCE CONTRACTS COVERAGE § 1018 (1995); Argonaut SW. Ins. Co., 500 S.W.2d at 636 ("The duty to defend does not depend on what the facts are. . . .").
See, e.g., State Farm Fire Cas. Co. v. Wade, 827 S.W.2d 448, 452-53 (Tex.App.-Corpus Christi 1992, writ denied); Gonzales v. Am. States Ins. Co. of Texas, 628 S.W.2d 184, 187 (Tex.App.-Corpus Christi 1982, no writ); Cook v. Ohio Cas. Ins. Co., 418 S.W.2d 712, 715-16 (Tex.App.-Texarkana 1967, no writ); W. Heritage Ins. Co. v. River Entm't, 998 F.2d 311, 313 (5th Cir. 1993); but see Tri-Coastal Contractors, Inc. v. Hartford Underwriters Ins. Co., 981 S.W.2d 861, 863-64 (Tex.App.-Houston [1st Dist.] 1998, pet. denied) (applying the strict eight corners approach to reverse the trial court's use of extrinsic evidence).
Although Horton attached a significant amount of evidence to its summary judgment response that linked Ramirez to the injuries claimed by the Holmeses, an insured cannot supply factual allegations that the pleadings and reason do not. See Heyden Newport Chem. Corp., 387 S.W.2d at 24 ("in determining the duty of a liability insurance company to defend a lawsuit the allegations of the complainant should be considered in the light of the policy provisions without reference to the truth or falsity of such allegations and without reference to what the parties know or believe the true facts to be") (emphasis added). Accordingly, we affirm the summary judgment in favor of Markel on the issue of Markel's duty to defend.
When a trial court's order granting summary judgment does not specify the grounds relied upon, we must affirm summary judgment if any of the summary judgment grounds are meritorious. FM Properties. Operating Co. v. City of Austin, 22 S.W.3d 868, 872-73 (Tex. 2000). Having found that the application of the eight corners rule supports the judgment, we need not and do not consider the other challenges raised by Horton regarding Markel's duty to defend.
2. The Duty to Indemnify
An insurer's duty to defend is separate and distinct from its duty to indemnify. Farmers Tex. County Mut. Ins. Co. v. Griffin, 955 S.W.2d 81, 82 (Tex. 1997) (per curiam). Unlike the duty to defend, the duty to indemnify is based on facts proven, not on pleadings. Comsys Info. Tech. Servs., Inc. v. Twin City Fire Ins. Co., 130 S.W.3d 181, 190 (Tex.App.-Houston [14th Dist.] 2003, pet. denied).
Even though we do not look at the specific legal theories alleged to determine the duty to indemnify, if the underlying petition does not raise factual allegations sufficient to invoke the duty to defend, then even proof of all of those allegations could not invoke the insurer's duty to indemnify. Reser v. State Farm Fire Cas. Co. 981 S.W.2d 260, 263 (Tex.App.-San Antonio 1998, no pet.). For this reason, the same arguments that disposed of Markel's duty to defend also dispose of its duty to indemnify. Because the Holmes suit did not allege facts covered by the policy, even proof of those facts would not trigger coverage. We therefore affirm the trial court's summary judgment in favor of Markel on the issue of Markel's duty to indemnify.
3. Claims Asserted After Markel's Motion for Summary Judgment was Filed
Horton argues that even if we affirm Markel's motion for summary judgment, it should be a partial summary judgment and not a "take-nothing" summary judgment because the motion did not address the allegations of fraud and of statutory and common law misrepresentation raised in Horton's supplemental petition. Horton's first supplemental petition, filed after Markel moved for summary judgment, adds an allegation of "violations of the Texas Insurance Code/misrepresentation" that is not addressed in Markel's motion. In its brief, Horton clarifies this allegation as a claim of "statutory and common law misrepresentation."
Because neither Horton's original petition nor its first supplemental petition stated a cause of action for fraud, this claim was not alleged or adjudicated.
Horton is correct that in its summary judgment motion, Markel did not move for summary judgment on Horton's misrepresentation claims. Generally, a court may not grant judgment on a cause of action not addressed in a motion for summary judgment. Chessher v. SW. Bell Tel. Co., 658 S.W.2d 563, 564 (Tex. 1983) (per curiam). Markel's motion requested judgment on the claims that Horton had asserted in its original petition, but did not seek judgment on the later-filed misrepresentation claims. Because the trial court's judgment included these claims, it granted more relief than requested. See Mafrige v. Ross, 866 S.W.2d 590, 591 (Tex. 1993) overruled on other grounds, Lehmann v. Har-Con Corp., 39 S.W.3d 191 (Tex. 2001) (summary judgment may not be granted on a ground not addressed in the motion). We therefore reverse the judgment in favor of Markel to the extent that it grants summary judgment on Horton's claims of statutory and common law misrepresentation.
4. Motion for Continuance
Horton also appeals the denial of its motion to continue the hearing on Markel's motion for summary judgment. Within Horton's response to Markel's motion for summary judgment is a request to continue the hearing on Markel's motion for summary judgment in order to conduct additional discovery. Neither Markel's response nor a copy of the order denying the motion has been presented for our review. Moreover, there is no indication that Markel ever offered a proposed order, conferred with opposing counsel regarding the proposed continuance, or even set the motion for hearing or submission.
The court will not disturb a trial court's order denying a motion for continuance unless the trial court has committed a clear abuse of discretion. BMC Software Belgium, N.V. v. Marchand, 83 S.W.3d 789, 800 (Tex. 2002). A trial court "abuses its discretion when it reaches a decision so arbitrary and unreasonable as to amount to a clear and prejudicial error of law." Id. Here, however, the evidence does not support a conclusion that the trial court acted unreasonably.
Even if we were to assume that the parties agreed to have the motion for continuance heard at the hearing on the motion for summary judgment, we can not say that the trial court's action was arbitrary or unreasonable. On its face, Markel's motion failed to comply with TEX. R. CIV. P. 252 (application for continuance must "state that the continuance is not sought for delay only, but that justice may be done"), HARRIS (TEX.) CIV. DIST. CT. LOC. R. 3.3.1 (motions "shall be accompanied by a proposed order granting the relief sought"); HARRIS (TEX.) CIV. DIST. CT. LOC. R. 3.3.3 ("[m]otions shall state Monday at 8:00 a.m. as the date for written submission. This date shall be at least 10 days from filing, except on leave of court"); and HARRIS (TEX.) CIV. DIST. CT. LOC. R. 3.3.6 (requiring a certificate of conference). Furthermore, when a party receives notice of a summary judgment hearing and the notice gives more than the twenty-one days required by the rules of civil procedure, denial of a motion for continuance based on lack of time to prepare generally is not an abuse of discretion. Karen Corp. v. Burlington N. Santa Fe Ry. Co., 107 S.W.3d 118, 124 (Tex.App.-Fort Worth 2003, pet. denied). Here, Markel set the hearing on its motion for summary judgment thirty-five days after the motion was filed. Finally, no further discovery was necessary in order for Horton to adequately respond to Markel's motion for summary judgment, because the Holmes petition and the Markel policy established that Markel was entitled to summary judgment as a matter of law. See id. We therefore overrule Horton's procedural challenge.
B. THE SPHERE DRAKE SUMMARY JUDGMENT
Like Markel, Sphere Drake argued inter alia that the Holmes petition failed to state a covered claim because none of the factual allegations state or infer that the injuries arose out of Ramirez's work. Unlike Markel, however, Sphere Drake failed to attach a copy of its insurance policy to its motion for summary judgment. None of the briefs have cited to a Sphere Drake insurance policy in the record, nor has our review of the record discovered the additional insured endorsement that is central to Horton's claims against Sphere Drake.
Horton and Sphere Drake have each been at great pains to explain to the trial court and to this court explaining how the "eight corners" rule affects this case, while in fact, only "four corners" have ever been presented. While the parties have argued over what the policy means, they have neglected to demonstrate what it actually says.
In the absence of the policy, we can not perform the "eight corners" analysis required to determine the scope of Sphere Drake's defense obligations to Horton, or to determine the extent to which Sphere Drake agreed to indemnify Horton. Indeed, none of Sphere Drake's arguments can be assessed without first ascertaining the terms of the policy. We therefore agree with Horton that Sphere Drake has failed to meet its burden of proof, and accordingly reverse the order of April 20, 2005 granting Sphere Drake summary judgment.
V. CONCLUSION
Because neither the factual allegations of the Holmes suit nor any reasonable inferences drawn from the Holmes pleading assert claims against Horton that are insured by Markel, we affirm the judgment in favor of Markel on all claims asserted in Horton's original petition; however, because Markel did not move for summary judgment on the statutory and common law misrepresentation claims asserted in Horton's first supplemental petition, we reverse the judgment in favor of Markel as to those claims only. In addition, because the evidence offered by Sphere Drake in support of its motion for summary judgment was inadequate to support the judgment as a matter of law, we reverse the judgment in favor of Sphere Drake, and remand the case to the trial court for further proceedings consistent with this opinion.