Case: 09-20060 Document: 00511171777 Page: 1 Date Filed: 07/13/2010
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
July 13, 2010
No. 09-20060 Lyle W. Cayce
Clerk
AMERISURE INSURANCE CO.,
Plaintiff-Appellant,
v.
NAVIGATORS INSURANCE CO.,
Defendant-Appellee.
Appeal from the United States District Court
for the Southern District of Texas
Before KING, BARKSDALE, and ELROD, Circuit Judges.
JENNIFER WALKER ELROD, Circuit Judge:
This case arises out of a disagreement between two insurers over their
respective duties to indemnify for personal injuries sustained in an automobile
accident. Amerisure, the primary insurer, argued that it did not have a duty to
indemnify. Navigators, the excess insurer, disagreed, demanding that Amerisure
pay the $1 million limit of its policy. The insurers, however, agreed that the
personal-injury lawsuit should be settled, and they agreed on the amount of the
settlement, $2.35 million. Amerisure paid the $1 million, but reserved its right
to seek reimbursement. Navigators and another insurer paid the balance.
Amerisure then sought reimbursement from Navigators through equitable and
contractual subrogation. On cross-motions for summary judgment, the district
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court granted summary judgment for Navigators, finding that, although the
Amerisure policy did not cover the incident, Amerisure could not recover
through equitable or contractual subrogation.
Before us are four issues: (1) whether Mid-Continent Insurance Co. v.
Liberty Mutual Insurance Co., 236 S.W.3d 765 (Tex. 2007), bars Amerisure’s
contractual-subrogation claim; (2) whether equitable subrogation is available;
(3) whether Amerisure had a duty to indemnify under three exclusions in its
policy; and (4) whether the conditional exclusion of the Navigators policy
applied. We conclude that contractual subrogation is available, and hence, we
do not reach the claim for equitable subrogation. Furthermore, we conclude that
there is a genuine issue of material fact as to Amerisure’s duty to indemnify.
Finally, we conclude that the conditional exclusion does not apply. Accordingly,
we VACATE the grant of summary judgment on the contractual-subrogation
claim, and we REMAND for the determination of Amerisure’s duty to indemnify.
BACKGROUND AND PROCEDURAL HISTORY
On October 9, 2003, William Sylvester drove two employees of Texas
Crewboats Inc., Captain Dixie Clanton and Deckhand Jimmy Satterfield, from
Freeport, Texas to Morgan City, Louisiana where the two were to board and
crew the Florida Lilly, one of Texas Crewboats’s vessels. While en route,
Sylvester fell asleep at the wheel, thereby causing the vehicle to veer off of the
road and flip over. Clanton and Satterfield suffered significant injuries as a
result. They sued Texas Crewboats and Sylvester in Louisiana state court,
claiming negligence and recklessness against Sylvester and bringing similar
claims under the Jones Act against Texas Crewboats. Clanton and Satterfield
claimed that Sylvester was driving in the course and scope of his employment
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with Texas Crewboats and that Texas Crewboats was vicariously liable. They
also sued Texas Crewboats for maintenance and cure benefits.
At the time, Texas Crewboats carried three insurance policies that the
incident potentially implicated. Amerisure provided $1 million of primary
automobile-liability insurance. Under that policy, Sylvester, who was driving the
vehicle with the permission of Texas Crewboats, was also an insured. Fireman’s
Fund Insurance Company provided $1 million of primary coverage for marine
protection and indemnity. Navigators was the excess insurer, covering up to $9
million. Under this arrangement, if an incident fell within the coverage of any
of the primary insurers, that insurer must indemnify the insured up to $1
million, and then, Navigators would cover the remainder up to $9 million.
The Amerisure policy contains three exclusions that are relevant here:
The insurance does not apply to any of the following: . . .
3. WORKERS COMPENSATION
Any obligation for which the insured or the insured’s insurer may
be held liable under any workers compensation, disability benefits
or unemployment compensation law or any similar law.
4. EMPLOYEE INDEMNIFICATION AND EMPLOYER’S
LIABILITY
Bodily Injury to:
a. An employee of the insured arising out of and in the course of
employment by the insured . . .
But this exclusion does not apply to bodily injury to domestic
employees not entitled to workers compensation benefits or to
liability assumed by the insured under an insured contract.
5. FELLOW EMPLOYEE
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Bodily injury to any fellow employee of the insured arising out of
and in the course of the fellow employee’s employment.
The Amerisure policy also reserves Amerisure’s right to subrogation:
If any person or organization to or for whom we make payment
under this Coverage Form has rights to recover damages from
another, those rights are transferred to us. That person or
organization must do everything necessary to secure our rights and
must do nothing after accident or loss to impair them.
The Navigators policy contains a conditional exclusion that reads,
As respects all activities of the Assured (except liability arising out
of ownership, charter, use, operation, maintenance, loading,
unloading, ship repairing or as a bailee of any watercraft not
otherwise excluded or limited herein), this insurance shall be free
from liability (unless coverage is provided in an underlying policy
scheduled hereon, and then coverage hereunder shall only operate
as excess of such coverage):
(a) from operation, ownership, use of any automobile, truck or
aircraft . . . .
Under the circumstances, Texas Crewboats wanted the case settled, and
all of the interested parties, including the insurers, agreed. Following
mediation, the parties agreed to the following settlement: Clanton’s claims
would be settled for $1,325,000 and Satterfield’s for $1,025,000. The insurers,
however, could not agree on which of them should pay. Amerisure argued that
only the Fireman’s and Navigators policies applied. Navigators insisted that the
incident also fell within the Amerisure policy, and therefore, demanded that
Amerisure pay its $1 million limit.
In April 2006, Amerisure moved for summary judgment in Louisiana
state court, seeking a declaration that its policy did not cover the incident. On
June 15, 2006, Amerisure voluntarily withdrew that motion. Ultimately,
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Amerisure paid $1 million and Navigators paid $1.35 million, which included
sums from Fireman’s. In the settlement agreement, Amerisure reserved its
right to seek reimbursement from Navigators through subrogation. During
those settlement negotiations, Amerisure filed this subrogation action in the
United States District Court for the Southern District of Texas.
The parties filed cross-motions for summary judgment before the district
court in 2006. The motions focused on three issues: (1) whether the three
exclusions in the Amerisure policy applied, (2) whether the conditional
exclusion in the Navigators policy applied, and (3) whether Amerisure could
recover through contractual and equitable subrogation. Over two years later,
in January 2009, the district court issued its opinion, addressing only the first
and third issues. Amerisure Ins. Co. v. Navigators Ins. Co., 04:06-CV-2069, op.
at 1-4 (S.D. Tex. Jan. 7, 2009). It decided the former for Amerisure, finding that
all three exclusions “equally apply to deny coverage.” Id. at 2 . Nonetheless, the
court denied reimbursement because it found that Amerisure could not pursue
contractual- or equitable-subrogation claims against Navigators. See id. at 3.
With respect to contractual subrogation, the court held that Navigators had
been released from liability as a party to the settlement. See id. It also held
that, under Mid-Continent Insurance Co. v. Liberty Mutual Insurance Co., 236
S.W.3d 765, 776 (Tex. 2007), “Amerisure has no contractual right to be
subrogated” because the insured parties were fully indemnified. Id. On the
question of equitable subrogation, the court found that Amerisure voluntarily
contributed to the settlement. See id. Amerisure timely appealed.
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STANDARD OF REVIEW
The court reviews, de novo, a district court’s award of summary judgment,
applying the same standard as the district court. Ford Motor Co. v. Tex. Dep’t
of Transp., 264 F.3d 493, 498 (5th Cir. 2001). Summary judgment is proper
when “the pleadings, the discovery and disclosure materials on file, and any
affidavits show that there is no genuine issue as to any material fact and that
the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c). “A
genuine issue of material fact exists when the evidence is such that a
reasonable jury could return a verdict for the non-moving party.” Gates v. Tex.
Dep’t of Protective & Regulatory Servs., 537 F.3d 404, 417 (5th Cir. 2008) (citing
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). “On cross-motions for
summary judgment, we review each party’s motion independently, viewing the
evidence and inferences in the light most favorable to the nonmoving party.”
Ford, 264 F.3d at 498 (citation omitted).
DISCUSSION
I. Contractual Subrogation and Mid-Continent
The first issue that we must address is one of first impression for this
court: whether Mid-Continent Insurance Co. v. Liberty Mutual Insurance Co.,
236 S.W.3d 765, 776 (Tex. 2007), precludes contractual subrogation simply
because the insured has been fully indemnified. We hold that it does not.
In Texas, parties create contractual-subrogation rights by agreement or
contract, granting the right to pursue reimbursement from a third party in
exchange for payment of a loss. See id. at 774. When the insurer seeks to recover
through contractual subrogation, it “stands in the shoes of the insured, obtaining
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only those rights held by the insured against a third party, subject to any
defenses held by the third party against the insured.” Id.
The Texas Supreme Court, in Mid-Continent, elaborated on the
contractual-subrogation doctrine when this court presented the following
certified question:
Two insurers, providing the same insured applicable primary
insurance liability coverage under policies with $1 million limits
and standard provisions (one insurer also providing the insured
coverage under a $10 million excess policy), cooperatively assume
defense of the suit against their common insured, admitting
coverage. The insurer also issuing the excess policy procures an
offer to settle for the reasonable amount of $1.5 million and
demands that the other insurer contribute its proportionate part of
that settlement, but the other insurer, unreasonably valuing the
case at no more than $300,000, contributes only $150,000, although
it could contribute as much as $700,000 without exceeding its
remaining available policy limits. As a result, the case settles
(without an actual trial) for $1.5 million funded $1.35 million by the
insurer which also issued the excess policy and $150,000 by the
other insurer.
In that situation is any actionable duty owed (directly or by
subrogation to the insured’s rights) to the insurer paying the $1.35
million by the underpaying insurer to reimburse the former
respecting its payment of more than its proportionate part of the
settlement?
Id. at 768. Both policies included pro rata clauses, limiting each insurer’s
exposure to the lesser of (1) the limit of the policy that it issued and (2) its
proportion of the settlement. Id. at 772. The Texas Supreme Court held that,
in the context presented, . . . a fully indemnified insured has no
right to recover an additional pro rata portion of settlement from an
insurer regardless of that insurer’s contribution to the settlement.
Having fully recovered its loss, an insured has no contractual rights
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that a co-insurer may assert against another co-insurer in
subrogation.
Id. at 772, 775-76. From this, the court concluded that, “after being fully
indemnified, [the insured does not have] any contractual rights remaining
against Mid-Continent. Because [the insured] has no rights to which Liberty
Mutual may be subrogated, Liberty Mutual has no right of reimbursement
through subrogation.” Id. at 777.
District courts in this circuit have differed on the impact that Mid-
Continent has had on contractual subrogation. Two courts, including the district
court here, have broadly construed Mid-Continent to preclude contractual
subrogation whenever the insured is fully indemnified or defended:
Because the men fully recovered their losses in the settlement, they
no longer have contractual rights against either co-insurer—even
where not all of them contributed to the men’s recovery. Without a
claim against an insurer, Amerisure has no contractual right to be
subrogated. Mid-Continent Ins. Co. v. Liberty Mut. Ins. Co., 236
S.W.3d 765, 776 (Tex. 2007).
Amerisure Ins. Co. v. Navigators Ins. Co., 04:06-CV-2069, op. at 3 (S.D. Tex. Jan.
7, 2009); see also Trinity Univ. Ins. Co. v. Employers Mut. Cas. Co., 586 F. Supp.
2d 718, 731 (S.D. Tex. 2008) (“Applying Mid-Continent, Plaintiffs stand in no
better position than Lacy Masonry, who, having been fully defended by Plaintiffs
in the underlying suit, has no basis to recover damages against EMC for its
failure to defend.”), aff’d on other grounds and rev’d on other grounds, 592 F.3d
687 (5th Cir. 2010).1 On appeal, this court did not reach the subrogation question
under Mid-Continent after finding that the appellants could recover through a
contribution claim. See Trinity Univ. Ins. Co. v. Employers Mut. Cas. Co., 592
1
Navigators has not argued for affirmance on this basis.
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F.3d at 695-96.
The majority of courts, however, have cabined Mid-Continent to its facts.
See Arrowood Indem. Co. v. Gulf Underwriters Ins. Co., No. EP-08-CV-285-DB,
2008 WL 5686082, at *5 (W.D. Tex. Dec. 19, 2008) (noting that Mid-Continent
was heavily dependant on the existence of pro rata clauses and that it “should
not be stretched beyond the facts which underlie that case”); Duininck Bros., Inc.
v. Howe Precast, Inc., No. 4:06-CV-441, 2008 WL 4372709, at *9 (E.D. Tex. Sept.
19, 2008) ( “Mid-Continent is a narrow case . . . .”); Lexington Ins. Co. v. Chi. Ins.
Co., No. H-06-1741, 2008 WL 3538700, at *13, 21-22 (S.D. Tex. Aug. 8, 2008)
(emphasizing that Mid-Continent “does not address whether an insurer that
contributes to a settlement fund but denies coverage for the underlying lawsuit,
and that reserves the right to dispute coverage and seek reimbursement for the
entire amount it paid, may recover that amount from the other insurer . . .”);
American Home Assur. Co. v. Liberty Mut. Ins. Co., No. 02-3842, 2008 WL
440303, at *2 n.4 (E.D. La. Feb. 12, 2008) (acknowledging that Mid-Continent
is confined to the factual circumstances).
Most recently, Judge Lee Rosenthal, in a well-reasoned opinion, rejected
the argument that Mid-Continent automatically precludes subrogation claims
whenever the insured is fully indemnified. See Employers Insurance Co. of
Wausau v. Penn-America Insurance Co., — F. Supp. 2d —, 2010 WL 1404111, at
*12-13 (S.D. Tex. 2010). There, the court emphasized that Mid-Continent is
limited to situations where the insurers (1) were co-primary insurers, (2) did not
dispute that both covered the loss, and (3) were subject to pro rata clauses. See
id. at *12. The court further reasoned that such a broad reading of Mid-
Continent
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would make statutory or contractual indemnification in Texas
unavailable to the insurer of a seller asserting that its acts or
omissions did not cause the underlying plaintiff’s injury if the
seller’s insurer assumed the insured’s defense and paid to settle the
claim. This reading is not supported by the Texas Supreme Court’s
statements after Mid-Continent. See Frymire Eng’g Co. v. Jomar
Int’l, Ltd., 259 S.W.3d 140, 145 (Tex. 2008) (“[The allegedly
responsible party’s] argument that [the settling party] cannot assert
equitable subrogation because its indemnity payment was under a
voluntary contract would, if accepted and applied to other contracts,
be a radical departure from long-settled Texas subrogation law. For
instance, insurance policies are contracts, too, and if the hotel’s
property insurer had paid the hotel for the cost of repairs pursuant
to a policy agreement, it would certainly be able to assert an
equitable subrogation claim against [the allegedly responsible
party].”).
Id. at *13.
We agree with the majority of courts that have examined this issue and we
reject the overly broad view of Mid-Continent’s subrogation exclusion. That view
would effectively end contractual subrogation in Texas. This cannot be so,
particularly in light of the Texas Supreme Court’s most recent contractual-
subrogation decision in Texas Health Insurance Risk Pool v. Sigmundik, —
S.W.3d — , 2010 WL 2136625 (Tex. 2010).
Although Sigmundik does not specifically address the reach of Mid-
Continent, it is nonetheless instructive. There, the insurer had fully indemnified
the insured for his medical expenses ($336,874.71) arising out of injuries
sustained in an oil-field explosion. See id. at *1. After the death of the insured,
his wife filed a negligence action on behalf of herself, her two minor sons, and
the insured’s estate. Id. The insurer intervened, arguing that it was “subrogated
to the rights of [the insured] and his estate” based on an express subrogation
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provision in the policy:
We will be subrogated to all rights of recovery which any person
may have against another party for all benefits paid by the Pool
which were incurred by the Insured Person as a result of the
negligence or misconduct of another party. Our right to repayment
shall be a lien against any recovery by the Insured Person whether
it be by judgment, settlement, or otherwise.
Id. The negligence action settled for $800,000, and the court explained that,
through contractual subrogation, the insurer stepped into the shoes of the
insured (the estate) and has a valid claim to recover the $336,874.71 from the
settlement. See id. at *2-3. The court could not have reached this result if the
broad view of Mid-Continent was in fact the law of Texas.
Since Mid-Continent, the Texas Supreme Court has not specified the
precise boundaries of its holding as it applies to contractual subrogation when
the insured is fully indemnified. Nor do we attempt to do so here. Instead, our
decision here is an Erie guess, and in making an Erie guess, we must determine
how the Texas Supreme Court would resolve the issue under the specific
circumstances presented. See Chaney v. Dreyfus Serv. Corp., 595 F.3d 219, 229
(5th Cir. 2010) (citation omitted). Accordingly, in light of Sigmundik, we hold
that Mid-Continent does not bar contractual subrogation simply because the
insured is fully indemnified.2
Our inquiry does not end here, however, as we still must determine
whether Mid-Continent precludes contractual subrogation in this case. It does
not. In Mid-Continent, the insured was fully protected because both insurers
2
In so holding, we recognize that one could reasonably interpret the plain language of
Mid-Continent to support such a broad exclusion of subrogation. We also note that the district
court did not have the benefit of Sigmundik.
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acknowledged their duties to defend and indemnify. See 236 S.W.3d at 769.
Limiting Mid-Continent to such circumstances is faithful to the longstanding
view of the Texas Supreme Court, as articulated over half a century ago by
Justice Jack Pope, that dueling coinsurers must place the interests of their
insureds before their own. See Hardware Dealers Mut. Fire Ins. Co. v. Farmers
Ins. Exch., 444 S.W.2d 583, 588-89 (Tex. 1969) (emphasizing that the “settled
principles” of Texas insurance law require insurers to “give dominant
consideration to the rights of the insured”). That is the missing element here:
Amerisure insisted that its policy did not apply, and Navigators refused to
indemnify until Amerisure paid its $1 million policy limit. In other words, the
insureds would not have been fully protected, and applying the Mid-Continent
exclusion in this situation would have further deviated from settled principles
of Texas insurance law by discouraging insurers from first defending and
indemnifying and then seeking reimbursement for the costs that a coinsurer
should have paid. See Keck, Mahin & Cate v. Nat’l Union Fire Ins. Co. of
Pittsburgh, Pa., 20 S.W.3d 692, 703 (Tex. 2000) (rejecting a view of subrogation
as “bad public policy” because it would “discourage insurance companies from
paying or settling disputed claims and thereby force insureds more often into
litigation with their insurers”); see also Hardware Dealers, 444 S.W.2d at 588-89.
Therefore, we hold that Mid-Continent does not bar contractual subrogation
when an insurer has denied coverage.
The district court provided an additional basis for dismissing Amerisure’s
contractual-subrogation claim. It held that, “[a]lthough Amerisure purchased the
right to pursue the mens’ claims against third parties, Navigators has been
released from liability as a party to the settlement.” Amerisure Ins. Co. v.
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Navigators Ins. Co., 04:06-CV-2069, op. at 3 (S.D. Tex. Jan. 7, 2009). This
overlooks how contractual subrogation places Amerisure in the shoes of its
insureds, Texas Crewboats and Sylvester. See Mid-Continent, 236 S.W.3d at
774. Neither released Navigators. Furthermore, in its settlement agreement
with Clanton and Satterfield, Amerisure reserved its right to recoup its
contribution through subrogation from Navigators. In sum, Amerisure has a
right to contractual subrogation. Accordingly, we do not reach the equitable-
subrogation claim. See Bay Rock Operating Co. v. St. Paul Surplus Lines Ins.
Co., 298 S.W.3d 216, 225 (Tex. App.—San Antonio 2009, pet. denied) (“Here,
there is no dispute that St. Paul had a contractual subrogation right pursuant
to its insurance policy with Hollimon; therefore, the express agreement of the
parties controls, and equitable principles do not come into play.”).
II. Coverage under the Amerisure Policy
Although Amerisure has a contractual-subrogation right, that right only
entitles it to reimbursement if Amerisure did not have a duty to indemnify its
insureds, Texas Crewboats and Sylvester. Amerisure contends that three
exclusions in its policy preclude its duty to indemnify. These exclusions relate
to workers’ compensation, employee indemnification, and injuries to fellow
employees, which we will describe in greater detail below. In order to determine
Amerisure’s duty to indemnify, we must examine how each of these exclusions
applies to each insured. That is because Section V.D. of the Amerisure policy
requires that, “[e]xcept with respect to the Limit of Insurance, the coverage
afforded applies separately to each insured who is seeking coverage or against
whom a claim or suit is brought.” Amerisure has no duty to indemnify if any one
of the exclusions applies to each insured. Put differently, Amerisure must
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indemnify if none of the exclusions discharges its duty to indemnify Texas
Crewboats and Sylvester.
The district court found that all three exclusions deny coverage.3
Navigators disputes this, urging us to hold, as an alternative ground for
affirmance, that none of the exclusions apply. In addition, Navigators contends
that, under the conditional-exclusion clause of its policy, if the Amerisure policy
did not cover Sylvester, its policy also would not. In that situation, Navigators
argues that Amerisure may not recover its contribution.
With respect to Texas Crewboats, we conclude that only the employee-
indemnification exclusion applies. With respect to Sylvester, the only exclusion
that could potentially apply is the fellow-employee exclusion, but there is a
genuine issue of material fact regarding this question. Hence, the issue of
Amerisure’s duty to indemnify survives summary judgment. Finally, we
conclude that the conditional exclusion of the Navigators policy does not apply.
A. Interpreting Insurance Policies in Texas
“Under Texas Law, insurance policies are construed as are contracts
generally, and must be interpreted to effectuate the intent of the parties at the
time the contracts were formed.” Mid-Continent Cas. Co. v. JHP Dev., Inc., 557
F.3d 207, 212 (5th Cir. 2009) (citations omitted). When an insurance policy is
ambiguous or inconsistent, the interpretation that would afford coverage
governs. Id. (citations omitted). “Exceptions or limitations on an insurer’s
3
The district court, in one sentence and without analysis, found that the employee-
indemnification and fellow-employee exclusions apply: “The second and third exclusions
equally apply to deny coverage.” Amerisure Ins. Co. v. Navigators Ins. Co., 04:06-CV-2069, op.
at 2 (S.D. Tex. Jan. 7, 2009). In addition, the district court did not separately evaluate
coverage for each insured, as the policy requires.
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liability are construed even more stringent[ly].” Mid-Continent Cas. Co. v. Swift
Energy Co., 206 F.3d 487, 491 (5th Cir. 2000) (citation and internal quotation
marks omitted) (alterations in original). The court must accept the
interpretation of the exclusionary clause urged by the insured if it is “not itself
unreasonable,” even if the insurer’s interpretation seems “more reasonable or a
more accurate reflection of the parties’ intent.” Barnett v. Aetna Life Ins. Co., 723
S.W.2d 663, 666 (Tex. 1987) (citations omitted). The court resolves all doubts
regarding coverage in favor of coverage. See King v. Dallas Fire Ins. Co., 85
S.W.3d 185, 187 (Tex. 2002); Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v.
Merchs. Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex. 1997).
An insurer has two responsibilities relating to coverage—the duty to
defend and the duty to indemnify. See D.R. Horton-Texas, Ltd. v. Markel Int’l
Ins. Co., 300 S.W.3d 740, 743 (Tex. 2009). Two documents determine an insurer’s
duty to defend—the insurance policy and the third-party plaintiff’s pleadings in
the underlying litigation, which the court must review “without regard to the
truth or falsity of those allegations.” GuideOne Elite Ins. Co. v. Fielder Rd.
Baptist Church, 197 S.W.3d 305, 308 (Tex. 2006) (citations omitted). This is
known as the eight-corners rule. Id. (citations omitted). Under the eight-corners
rule, the “[f]acts outside the pleadings, even those easily ascertained, are
ordinarily not material to the determination and allegations against the insured
are liberally construed in favor of coverage.” Id.
The eight-corners rule, however, does not govern the duty to indemnify.
See D.R. Horton-Texas, 300 S.W.3d at 743-44. That is because the two duties are
distinct such that one duty may exist without the other. Id. at 743. “In
determining coverage, a matter dependent on the facts and circumstances of the
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alleged injury-causing event, parties may introduce evidence during coverage
litigation to establish or refute the duty to indemnify.” Id. at 741. With these
principles in mind, we now turn to the exclusions at issue.
B. The Amerisure Exclusions
i. Workers’-Compensation Exclusion
The workers’-compensation exclusion does not preclude coverage for
Texas Crewboats or Sylvester.
a. Texas Crewboats
Clanton and Satterfield sued Texas Crewboats for negligence under the
Jones Act. This exclusion precludes coverage for “[a]ny obligation for which the
insured or the insured’s insurer may be held liable under any workers
compensation . . . or any similar law.” The issue, therefore, is whether the Jones
Act is “similar” to workers’ compensation . It is not.
The Texas Supreme Court has not addressed this precise question, and
we have located only one published decision that is directly on point, Sanders
v. Homes Indemnity Insurance Co., 594 So.2d 1345, 1352-53 (La. Ct. App. 3d
Cir. 1994).4 In Sanders, 594 So.2d at 1352, the court considered the effect of a
similar exclusion, stating that “[t]his insurance does not cover . . . [a]ny
obligation imposed by a worker’s compensation . . . law . . . or any similar law.”
The court held that the Jones Act is not similar to workers’ compensation
because the former is based on the employer’s negligence while the latter is not.
See Sanders, 594 So.2d at 1352-53; see also Abogado v. Int’l Marine Carriers,
4
In making an Erie guess, this court may consult the decisions of other jurisdictions
so long as the highest court of the forum state has not addressed the issue. See SMI Owen
Steel Co. v. Marsh USA, Inc., 520 F.3d 432, 437 (5th Cir. 2008) (citation omitted).
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890 F. Supp. 626, 630 (S.D. Tex. 1995) (explaining that workers’-compensation
claims, which are imposed without regard to fault, are not similar to and
“independent of claims based on . . . Jones Act negligence” (citation omitted)).
We find this reasoning persuasive.
Furthermore, the operative phrase here, “any similar law,” is ambiguous
with respect to the Jones Act claims. In light of this ambiguity, the court must
interpret the term so that it does not exclude coverage. See Mid-Continent Cas.
Co. v. Swift Energy Co., 206 F.3d 487, 491 (5th Cir. 2000) (citation omitted).
b. Sylvester
This exclusion does not apply to Sylvester. Clanton and Satterfield
charged Sylvester with negligent and reckless driving. Because Sylvester was
not Clanton or Satterfield’s employer, such claims, if proven, would not create
“obligation[s] for which [Sylvester] or [his] insurer may be held liable under any
workers compensation, disability benefits or unemployment compensation law
or any similar law.”
ii. Employee-Indemnification Exclusion
This exclusion precludes coverage for Texas Crewboats, but not for
Sylvester.
a. Texas Crewboats
The parties agree that the accident involved “bodily injury to . . .
employee[s] of [Texas Crewboats] arising out of and in the course of employment
by [Texas Crewboats] . . . .” Navigators, however, contends that the exclusion is
inapplicable under the subsection of the exclusion that states, “[t]his exclusion
does not apply to bodily injury to domestic employees not entitled to workers
compensation benefits . . . .” According to Navigators, the term “domestic
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employees” does not refer to “butlers and chambermaids,” but rather to
employees who work in the United States as opposed to those who work abroad.
This interpretation is unreasonable, and therefore, does not defeat the otherwise
applicable exclusion. Cf. Barnett v. Aetna Life Ins. Co., 723 S.W.2d 663, 666 (Tex.
1987) (citations omitted).
Navigators admits that it was only able to locate one decision to support
its interpretation, Carroll v. Castillo, No. 13-99-006-CV, 2000 WL 34592617, at
*5 (Tex. App.—Corpus Christi April 6, 2000, no pet. h.) (finding that the term
“domestic employee” is ambiguous because it can refer to someone who works in
the United States, and therefore, the term is “incapable of precise determination
for summary judgment purposes”). Carroll was not designated for publication,
which means that, under Texas Rule of Appellate Procedure 47.7, it has no
precedential value. Furthermore, this court does not consider unpublished
opinions when making an Erie guess. See Primrose Operating Co. v. Nat’l Am.
Ins. Co., 382 F.3d 546, 565 (5th Cir. 2004).
The Texas Supreme Court has not resolved this question. Nor does it
appear that any Texas court has resolved this issue in a published opinion. Thus,
we consult decisions from other jurisdictions and the “majority rule” in making
this Erie guess. See SMI Owen Steel Co. v. Marsh USA, Inc., 520 F.3d 432, 437
(5th Cir. 2008) (citation omitted). Several courts have found that the term
“domestic employees,” as used in an insurance exclusion, refers to household
workers and not to those working in the United States. See, e.g., United Fire &
Cas. Co. v. Gravette, 182 F.3d 649, 655 (8th Cir. 1999) (holding that “domestic”
refers to a person who performs services in a private household); Dakota, Minn.,
& E. R.R. Corp. v. Heritage Mut. Ins. Co., 639 N.W.2d 513, 517 (S.D. 2002)
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(holding that “domestic servant” means a person whose “labor is directed to the
construction, maintenance or repair of the master’s private properties or care of
the master’s family” (internal quotation marks and citation omitted)); U.S. Fid.
& Guar. Co. v. Rosso, 521 A.2d. 301, 304 (Me. 1987) (holding that the phrase
“domestic employee,” as found in an insurance exclusion, refers to one that
works in a house or on household chores). We agree with the interpretation of
these courts.
This domestic-employee exception to the exclusion is inapplicable for
another reason—it only applies to those domestic employees who are not entitled
to workers’-compensation benefits. Clanton and Satterfield were entitled to such
benefits because Texas Crewboats was a workers’-compensation subscriber. In
sum, the employer-indemnification exception barred coverage for Texas
Crewboats.
b. Sylvester
This exception does not apply to Sylvester because he was not Clanton or
Satterfield’s employer: “This insurance does not apply to . . . bodily injury to . . .
[a]n employee of the insured . . . .” Sylvester is the “insured.” Clanton and
Satterfield suffered bodily injuries. In order for this exclusion to apply, they
must be employees of Sylvester. Neither party has claimed this, nor is there any
basis in the record for this conclusion.
iii. Fellow-Employee Exclusion
The fellow-employee exclusion does not preclude coverage for Texas
Crewboats, but it may preclude coverage for Sylvester if he was an employee of
Texas Crewboats.
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a. Texas Crewboats
This exclusion does not apply to Texas Crewboats because it is Clanton
and Satterfield’s employer, not their fellow employee. The exclusion only applies
to “[b]odily injury to any fellow employee of the insured . . . .”
b. Sylvester
Amerisure and Navigators contest whether Sylvester was an employee of
Texas Crewboats when the incident occurred. If he was, the exclusion applies,
but if he was not, the exclusion does not apply. There is a genuine issue of
material fact on this point. Navigators submitted the Declaration of James
Travis, the Operations Manager of Texas Crewboats, explaining that Sylvester
was not an employee, but rather, an independent contractor. Amerisure disputes
this, pointing to deposition testimony from Clanton indicating that Sylvester was
an employee. This court must consider the declaration and the deposition
testimony when determining an insurer’s duty to indemnify. See D.R. Horton-
Texas, Ltd. v. Markel Int’l Ins. Co., 300 S.W.3d 740, 741, 744 (Tex. 2009). In light
of this conflicting testimony, neither party is entitled to summary judgment on
Amerisure’s duty to indemnify.
C. The Conditional Exclusion of the Navigators Policy
Navigators contends that, if Amerisure does not have a duty to indemnify
Sylvester, then Navigators also does not have such a duty under its conditional
exclusion, which provides, “this insurance shall be free from liability . . . unless
coverage is provided in an underlying policy scheduled hereon, and then
coverage hereunder shall only operate as excess of such coverage . . . .” According
to Navigators, “[b]ecause Amerisure deliberately declined to include an
allocation in its settlement agreement for Amerisure’s release versus Sylvester’s
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release, no part of the settlement amount is subject to its subrogation.”
This conditional exclusion does not apply when the liability “arise[s] out
of . . . [the] ownership, charter, use, operation, [or] . . . loading . . . of any
watercraft not otherwise excluded or limited herein . . . .” The vessel at issue, the
Florida Lilly, appears on the schedule of covered vessels. So the issue is whether
the incident arose out of the ownership, charter, use, operation, or loading of the
Florida Lilly.
In Utica National Insurance Co. of Texas v. American Indemnification Co.,
141 S.W.3d 198, 203 (Tex. 2004), the Texas Supreme Court explained that the
phrase “‘arise out of’ means that there is simply a ‘causal connection or relation,’
which is interpreted to mean that there is but for causation, though not
necessarily direct or proximate causation.” (citations omitted). Citing to our
decisions in Red Ball Motor Freight, Inc. v. Employers Mutual Liability
Insurance Co., 189 F.2d 374, 378 (5th Cir.1951), and American States Insurance
Co. v. Bailey, 133 F.3d 363, 370 (5th Cir.1998), the court further noted that
“‘[a]rising out of’ are words of much broader significance than ‘caused by.’” Utica,
141 S.W.3d at 203. This court has also explained that, under Texas insurance
law, the phrase “arising out of” has a broad definition favoring coverage—all that
is needed is an “incidental relationship” between a claim and the conduct that
the policy describes. Sport Supply Group, Inc. v. Columbia Cas. Co., 335 F.3d
453, 458-59 (5th Cir. 2003) (citations omitted); American States Ins. Co., 133
F.3d at 370 (“[T]he words ‘arising out of,’ when used within an insurance policy,
are ‘broad, general, and comprehensive terms effecting broad coverage.’” (citation
and footnote omitted)).
Applying this broad definition of “arising out of,” we find that there is a
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causal connection or incidental relationship between the incident and the
ownership, use, or operation of the Florida Lilly. Texas Crewboats had assigned
Clanton and Satterfield to operate the Florida Lilly as captain and deckhand
respectively. The incident occurred as Texas Crewboats was transporting them
from Freeport, Texas, where Texas Crewboats has offices, to Morgan City,
Louisiana, where the Florida Lilly was docked. Texas Crewboats transported
them in a company car and provided a driver and a company credit card for food
and gas during the trip. Furthermore, Texas Crewboats began paying them for
their services as soon as they departed from Freeport. The sole purpose of the
trip was to transport these crewmen to the Florida Lilly, where they were to
board and operate the vessel. Under these circumstances, we hold that (1)
transporting the operators of a vessel (2) to that vessel (3) by the owners of the
vessel (4) for the sole purpose of operating that vessel, has an incidental
relationship to the ownership, use, or operation of that vessel. Moreover, insofar
as the language of this exclusion is “ambiguous or inconsistent, the construction
that would afford coverage to the insured must govern.” Mid-Continent Cas. Co.
v. Swift Energy Co., 206 F.3d 487, 491 (5th Cir. 2000) (citations omitted).
Accordingly, the conditional exclusion in the Navigators policy does not apply.
CONCLUSION
For the reasons set forth above, we VACATE the grant of summary
judgment, dismissing the contractual-subrogation claim, and we REMAND for
the determination of Amerisure’s duty to indemnify.5 Amerisure may seek
5
Because Amerisure’s entitlement to recovery remains unresolved, Amerisure’s request
for attorney’s fees under Texas Civil Practice & Remedies Code § 38.001 is premature. See
Green Int’l., Inc. v. Solis, 951 S.W.2d 384, 390 (Tex. 1997) (“To recover attorney’s fees under
Section 38.001, a party must (1) prevail on a cause of action for which attorney’s fees are
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reimbursement through contractual subrogation if the fellow-employee exclusion
precludes coverage for Sylvester. This, in turn, rests on the determination as to
whether Sylvester was an independent contractor or an employee of Texas
Crewboats.
recoverable, and (2) recover damages.” (citation omitted)).
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