Opinion
No. 14-06-00229-CV
Opinion filed November 21, 2006.
On Appeal from the 295th District Court, Harris County, Texas, Trial Court Cause No. 04-38858.
Affirmed.
Panel consists of Chief Justice HEDGES and Justices YATES and SEYMORE.
MEMORANDUM OPINION
In this insurance coverage dispute, Shipside Crating Company, Inc. ("Shipside") contends that its insurer, Trinity Universal Ins. Co. ("Trinity"), breached its contractual duty to defend and indemnify. The trial court granted summary judgment in favor of Trinity and entered a take-nothing judgment. We affirm the trial court's judgment.
BACKGROUND
The relevant facts necessary to dispose of the issue are not in dispute. John Michael Baker ("Baker"), a truck driver, sued his former employer, Shipside, for claims of libel, slander, negligence, intentional infliction of emotional distress, tortious interference with contract, and tortious interference with prospective contracts. In the complaint, Baker alleged that Shipside filed a false report to DAC services, an organization maintaining an online database of drug and alcohol test results, in response to a request by Baker's then employer, Quality Carriers Inc. ("Quality Carriers"). The report allegedly stated that Baker had refused a drug test while working for Shipside. Baker further complained that as a result of the report, he lost his job with Quality Carriers and was no longer employable as a driver with any major trucking company.
At the time of the alleged false report, Shipside was the named insured under an insurance policy issued by Trinity. Shipside placed Trinity on notice of the lawsuit and Trinity responded initially with a reservation of rights letter. Subsequently, Trinity denied having a duty to defend or to indemnify Shipside in the litigation with Baker. After settling the underlying litigation with Baker, Shipside sued Trinity for failure to defend and indemnify. Trinity filed a motion for summary judgment which was ultimately granted by the trial court.
ANALYSIS
In its sole issue, Shipside argues that the trial court erred in granting summary judgment for Trinity because Trinity had a duty to defend and indemnify Shipside in the underlying litigation with Baker. Shipside contends that the Employment Related Practices Exclusion ("ERPE") in its policy with Trinity does not apply to those underlying claims. The parties agree that the underlying claims would qualify as a "personal injury" offense under the terms of the policy, thus generally requiring Trinity to defend those claims. The only question is whether the ERPE clause applied to exclude the underlying litigation from coverage under the policy.
The "Coverage B" agreement details Trinity's general requirement to defend "personal injury" claims:
We [Trinity] will pay those sums that the insured becomes legally obligated to pay as damages because of "personal injury" or "advertising injury" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages.
A motion for summary judgment is properly granted when the motion and summary judgment evidence show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law on the issues expressly set out in the motion or response. TEX. R. CIV. P. 166a(c). We review a trial court's granting of a summary judgment de novo, taking all evidence favorable to the nonmovant as true and resolving every doubt, and indulging every reasonable inference, in the nonmovant's favor. Provident Life Accident Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 2003); Sw. Elec. Power Co. v. Grant, 73 S.W.3d 211, 215 (Tex. 2002).
To determine whether an insurer has a duty to defend its insured, Texas courts apply the "eight corners" rule. King v. Dallas Fire Ins. Co., 85 S.W.3d 185, 187 (Tex. 2002); Nat'l Union Fire Ins. Co. v. Merchs. Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex. 1997). Under the "eight corners" rule, we compare the allegations in the pleadings implicating the insured to the terms of the insurance policy. King, 85 S.W.3d at 187; Nat'l Union Fire, 939 S.W.2d at 141. A liability insurer is obligated to defend the insured if the facts alleged in the pleadings would give rise to any claim within the coverage of the policy. Utica Nat'l Ins. Co. v. Am. Indem. Co., 141 S.W.3d 198, 201 (Tex. 2004); Nat'l Union Fire, 939 S.W.2d at 141. When determining the insurer's duty to defend, we interpret the allegations liberally in favor of the insured. King, 85 S.W.3d at 187; Nat'l Union Fire, 939 S.W.2d at 141. Any doubt as to whether the insurer has a duty to defend is resolved in favor of the insured. King, 85 S.W.3d at 187; Nat'l Union Fire, 939 S.W.2d at 141.
With respect to exclusionary clauses relied upon by the insurer to avoid coverage, the insurer bears the burden of showing that the exclusion applies. Utica, 141 S.W.3d at 202, 207; Altivia Corp. v. Greenwich Ins. Co., 161 S.W.3d 52, 54 (Tex.App.-Houston [14th Dist.] 2004, no pet). Courts must adopt the insured's construction of an exclusion whenever it is reasonable, even where the construction urged by the insurer appears to be more reasonable or a more accurate reflection of the parties' intent. Balandran v. Safeco Ins. Co., 972 S.W.2d 738, 741 (Tex. 1998); Betco Scaffolds Co., Inc. v. Houston United Cas. Ins. Co., 29 S.W.3d 341, 344 (Tex.App.-Houston [14th Dist.] 2000, no pet.).
The parties properly focus on whether Shipside's alleged submission of Baker's drug test results to DAC was "employment-related" as that phrase was meant to be understood under the terms of the policy. The ERPE at issue in this case stated:
This insurance does not apply to:
"Personal injury to:
(1) A person arising out of any:
(a) Refusal to employ that person;
(b) Termination of that person's employment; or
(c) Employment-related practices, policies, acts or omissions, such as coercion, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation, or discrimination directed at that person. . . .
The policy does not further define the phrase "employment-related." Fortunately, courts have previously interpreted a similar, if not identical exclusionary clause in the context of an insurer's duty to defend against a former employee's lawsuit. See Pa. Nat'l Mut. Cas. Ins. Co. v. Kitty Hawk Airways, No. CA 3-87-3033-R,1990 WL 757369 (N.D. Tex., Sept. 4, 1990) (finding that an insurance policy did not cover a former employee's defamation claims against the insured because the clause excluded personal injury claims "sustained by any person as a result of an offense directly or indirectly related to the employment of such person"), rev'd on other grounds, 964 F.2d 478 (5th Cir. 1992); Altivia, 161 S.W.3d at 54 (holding that defamation claims against the insured were "employment related acts" subject to exclusionary clause); Adams v. Pro Sources, Inc., 231 F.Supp.2d 499 (M.D. La. 2002) (finding that the insured's act of updating a database regarding a former employee's final day of work was made in the context of the employee's employment).
In Kitty Hawk, Pollard, a former employee, sued Kitty Hawk for defamation after he had been fired from his new position with Northwest Airlines. Kitty Hawk, 1990 WL 757369, at *1. Pollard alleged that Kitty Hawk, in response to a routine employment inquiry by Northwest, informed Northwest that, during Pollard's tenure at Kitty Hawk, Pollard had been admonished for drinking alcohol at a time when he was supposed to be available for flight duty. Pollard further alleged that he was fired from Northwest because of this defamatory statement. Kitty Hawk had an insurance policy with Pennsylvania National which covered personal injury liability arising out of the company's business. The policy also contained an exclusion which stated: "The policy does not apply . . . to personal injury sustained by any person as a result of an offense directly or indirectly related to the employment of such person by the named insured. . . ." Id. In holding that the claims against Kitty Hawk arose directly or indirectly from Pollard's employment, the court found that "the claims were based on alleged defamatory statements in a letter written about Pollard during his employment with Kitty Hawk. Accordingly, the Court finds that the statements do fall within [the employment-related exclusion] of the policy." Id. at *2. The court did not elaborate on its basis for finding that the alleged liability was directly or indirectly related to Pollard's employment, but it was clear, based on the facts, that the content of the statement (Pollard's behavior in relation to his duties) and the context (in response to an inquiry about Pollard's employment history) were both employment related. See id. at *1.
The Fifth Circuit Court of Appeals reversed the District Court on other grounds, but explicitly approved of the lower court's holding regarding the application of the exclusionary clause. See Pa. Nat'l Mut. Casualty Ins. Co. v. Kitty Hawk Airways, 964 F.2d 478 (5th Cir. 1992) ("Based upon the plain language of the Pennsylvania National-Kitty Hawk policy, we agree with the district court-Exclusion (c) is unambiguous and Pollard's claim falls within this exclusion.").
Previously before this court in Altivia, a former employee, Hidrogo, sued Altivia for wrongful termination and defamation. Altivia, 161 S.W.3d at 53. Hidrogo contended that Altivia had slandered and defamed him to other potential employers with allegedly false reports concerning Hidrogo's accident history at Altivia. The policy between Altivia and its insurer had a similar exclusion clause to the one in this case excluding personal injury "arising out of any termination of a person's employment or `employment related' acts or omissions, such as defamation (the `ERP exclusion')." Id. at 54. In finding that the exclusion clause applied to the alleged defamatory statements, this court held that, "To the extent [the statements] were alleged to be made in response to routine employment inquiries to Altivia by other prospective employers, they would be employment related acts subject to the ERP exclusion." Id. We therefore focused on the context of the statements made — in response to "routine employment inquiries" — in holding that the statements were employment related. Id. at 54. It should be noted that the content of the statements — Hidrogo's driving record as a truck driver — also was employment related. See id.
A Louisiana federal district court examined an employment-related exclusion clause in the context of facts closely resembling the underlying lawsuit in this case. See Adams, 231 F.Supp.2d 499. In Adams, a truck driver sued Pro Sources (his former employer) for, among other claims, defaming him by updating DAC with information about his final day with Pro Sources. Id. at 501. The insurance policy at issue had an exclusion clause using the same "arising out of" and "employment-related practices" language as in the Shipside-Trinity policy. Id. at 501-02. The court found that the alleged defamatory statement was excluded from the scope of the insurance policy. Id. at 505. As support for its holding, the court stated that:
[The allegedly defamatory statement] certainly described Adams' performance as an employee on his last day of employment. Moreover, Pro Sources admits that it was required by law to make a statement describing Adams' performance, entering data into DAC was its normal and existing practice in making the required statements regarding its employees' performances, and prospective employers review the content of DAC when making their hiring decisions. That Adams was no longer an employee or that he voluntarily terminated his employment relationship with Pro Sources prior to this statement being input into DAC is irrelevant, as it is abundantly clear from the circumstances that this allegedly defamatory statement was made in the course of Adam's employment and part of the normal and existing employment practices of Pro Sources.
Id. In other words, the court found that both the content of the statement and the context in which the statement was made were employment related.
In deciding whether an insurer has a duty to defend, we compare the pleadings in the underlying suit against the insured with the terms of the insurance policy to determine whether those pleadings give rise to any claims covered by the policy. See King, 85 S.W.3d at 187; Nat'l Union Fire, 939 S.W.2d at 141. The cases discussed above persuade us to evaluate the content of the statements alleged in the underlying lawsuit and the context in which they were made to determine if the statements are "employment related," such that an employment-related exclusion would apply. Furthermore, our previous holding in Altivia sets clear precedent that, to the extent any statements alleged were made "in response to routine employment inquiries" by prospective employers, the statements are employment related. See Altivia, 161 S.W.3d at 54. It is with this guidance that we evaluate the facts in our case.
The report submitted by Shipside to DAC allegedly stated that Baker had refused a drug test while working for Shipside. The result of Baker's drug test was clearly related to his employment with Shipside as a likely condition of continued employment. A drug test is specifically relevant to an employer of truck drivers, such as Shipside, because of the liability that might result from a driver driving under the influence of drugs. Therefore, the content of the report was employment related. Additionally, the context of Shipside's report was employment related. Shipside submitted the report in response to a request by Baker's new employer, Quality Carriers. Quality Carriers' request for the drug test results was a "routine employment inquiry" because Department of Transportation regulations require these types of employers to request such information from a former employer. See 49 C.F.R. § 382.413; cf. Adams, 231 F.Supp.2d at 505 (finding that updating DAC with information about the employee's final day of work was a routine employment inquiry). This court has held that statements made in response to routine employment inquiries are employment related. Altivia, 161 S.W.3d at 54. Shipside contends that the report was made in the context of complying with federal regulations, not in responding to an employer request. However, the response required under federal law was triggered only when Quality Carriers requested the information. See 49 C.F.R. § 40.331 (stating that the employer is required to release the information only upon request). For these reasons, we find that the report submitted by Shipside was employment related as contemplated by the exclusion in the policy with Trinity.
Shipside makes this argument under 49 C.F.R. § 40.331 which requires a former employer to release the results of a former employee's drug or alcohol tests upon request by an employer (with the employee's consent).
The cases on which Shipside relies are not applicable to the facts at hand. In Acceptance Insurance Co. v. Lifecare Corp., 89 S.W.3d 773 (Tex.App.-Corpus Christi 2002, no pet.), the underlying suit alleged that Lifecare was negligent in failing to accurately respond to an information request by a prospective employer of a former employee of Lifecare. The plaintiff in the underlying suit alleged that this inaccurate response contributed to the hiring of the employee who subsequently sexually assaulted the plaintiff. Id. at 777. In deciding whether an employment-related exclusion applied, the Thirteenth Court of Appeals found that Lifecare's response to the information request was not employment related. Id. at 786. Acceptance is distinguishable for several reasons. First, Lifecare was being sued by a third-party (non-employee of Lifecare), as opposed to our case in which the underlying lawsuit was brought by a former employee of Shipside. Also, the Acceptance court focused on whether the underlying pleadings alleged an employment-related "evaluation" in deciding if the exclusion applied, a factor not relevant in this case. See id. at 785-87. Finally, even though the court's findings partially relied on the fact that the employment relationship had ended when the alleged negligence occurred, the court specifically stated that this consideration was not as significant when defamation is the alleged act. Id. at 787 ("When the employment ended, the activity is less likely to be employment related except perhaps in some defamation or termination circumstances. . . ."). Other cases have found the fact that alleged defamatory statements were made after the employment relationship had ended to be an insignificant factor in determining whether those statements were employment related. See Kitty Hawk, 1990 WL 757369, at *2 (finding that the defamatory statements were employment related despite those statements having been made after the employment had ended); Altivia, 161 S.W.3d at 54 (holding post-employment defamatory statements were employment related). Acceptance is therefore distinguishable from this case.
Shipside also relies on Waffle House, Inc. v. Travelers Indemnity Co., 114 S.W.3d 601 (Tex.App.-Fort Worth 2003, pet. denied). We first note that, in Altivia, this court already distinguished Waffle House and disapproved of its analysis. See Altivia, 161 S.W.3d at 54. In Waffle House, a former employee sued Waffle House alleging that its executives had defamed her. The executives allegedly informed Grandy's, the former employee's current client, that she had been dismissed from Waffle House for poor performance, that she was vindictive, and that she had a personal vendetta against Waffle House. Waffle House, 114 S.W.3d at 603. The court held that an employment-related exclusion did not apply to the insurer's duty to defend the underlying lawsuit. Id. at 610. This court noted that the Waffle House holding was based on the alleged defamatory statements having been made "out of Waffle House's attempt to prevent its employees from leaving rather than being related to the plaintiff's termination," thereby creating some sort of self-protection exception to the employment-related exclusion. Altivia, 161 S.W.3d at 54. We disagreed with this analysis, holding that "even statements made for the purpose of preventing employees from leaving are employment-related acts" and that the employment-related act does not have to "arise out of the plaintiff's termination." Id. We reiterate our disapproval of the Waffle House court's reasoning and refuse to apply it to our facts.
Because we find that Trinity has no duty to defend Shipside, we need not reach the issue of whether Trinity has a duty to indemnify. See Collier v. Allstate County Mut. Ins. Co., 64 S.W.3d 54, 62 (Tex.App.-Fort Worth 2001, no pet.). We overrule Shipside's sole issue.
We affirm the judgment of the trial court.