St Paul Fire & Mrne v. Green Tree Fincl

Revised May 9, 2001

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 00-10237

ST. PAUL FIRE & MARINE INSURANCE COMPANY;
ST. PAUL MERCURY INSURANCE GROUP,

Plaintiffs-Appellants,

VERSUS

GREEN TREE FINANCIAL CORP.-TEXAS,

Defendant-Appellee.

Appeal from the United States District Court
for the Northern District of Texas

April 23, 2001
Before GARWOOD, PARKER, and DENNIS, Circuit Judges.

ROBERT M. PARKER, Circuit Judge:

Plaintiff-Appellant St. Paul Fire & Marine Insurance Company

(“St. Paul”) argues that the district court erred by entering

summary judgment in favor of Green Tree Financial Corp.-Texas

(“Green Tree”). The court concluded that St. Paul had a duty to

defend Green Tree in a suit involving Green Tree’s debt collection

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practices.1 We must determine whether the allegations against

Green Tree potentially state a cause of action covered under St.

Paul’s commercial insurance policies.

I. Facts

On April 1, 1993, Green Tree filed suit against Sylvia Lazo

and Eduardo Saenz to collect a debt that Lazo and Saenz owed after

purchasing a mobile home. Eduardo Saenz and Sylvia Corona, the

occupants of the mobile home, asserted counterclaims against Green

Tree for wrongful debt collection practices, for breach of a retail

installment contract, and for misrepresentations and breach of

warranties. The claimants alleged that Green Tree made frequent

rude and abusive telephone calls from 1986 to 1993 in an attempt to

collect the debt. On October 25, 1993, Green Tree notified St.

Paul of the counterclaims.2

St. Paul assumed Green Tree’s litigation expenses, but

reserved its rights to contest coverage.3 In February of 1995, St.

1
The district court asserted diversity jurisdiction pursuant to
28 U.S.C. § 1332. This Court has appellate jurisdiction over the
appeal pursuant to 28 U.S.C. § 1291.
2
The claimants’ factual allegations remained essentially
unchanged as to each of the amendments beginning with the fourth
amended counterclaim, filed on October 22, 1993, and ending with
the defendants’ eleventh amended counterclaim, dated January 17,
1995.
3
An insurance company may also reserve its rights to recoup its
costs of defense as long as the insurer specifically notifies the
insured of its intent to collect the defense costs in a reservation
of rights letter. See Matagorda County v. Texas Ass’n of Counties
County Gov’t Risk Mgmt. Pool, 975 S.W.2d 782, 785 (Tex. App.–-
Chorpus Christi 1998, writ granted), aff’d, 44 Tex. Sup. Ct. J.

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Paul settled with Saenz and Corona over Green Tree’s objection.

St. Paul filed for declaratory relief in federal district court

asserting that it had no duty to defend or indemnify Green Tree.

The district court, in two orders granting Green Tree’s motions for

summary judgment, held that St. Paul had a duty to defend Green

Tree under either the personal injury or bodily injury provisions

of the general commercial liability policies in effect at the time

of the alleged wrongful acts.

II. Analysis

We review a district court’s order granting summary judgment

de novo. See Guaranty Nat’l Ins. Co. v. Azrock Indus. Inc., 211

F.3d 239, 242 (5th Cir. 2000). Summary judgment under Rule 56(c)

of the Federal Rules of Civil Procedure is appropriate if there is

no genuine issue as to any material fact and the moving party is

entitled to judgment as a matter of law. See FED. R. CIV. P. 56(c);

Canutillo Indep. School Dist. v. National Union Fire Ins. Co., 99

F.3d 695, 700 (5th Cir. 1996).

A. The Duty to Defend Under Texas Law

Texas courts enforce an insurer’s duty to defend even when an

insurer’s duty to indemnify is not yet settled. See St. Paul Ins.

Co., 999 S.W.2d at 887. An insurance company’s duty to defend is

broader than its duty to indemnify. See St. Paul Ins. Co. v. Texas

215, 2000 WL 1867945 (Dec. 21, 2000). The litigants stipulated
that if St. Paul succeeds in this appeal, Green Tree will be liable
for the costs of defense.

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Dep’t of Transp., 999 S.W.2d 881, 884 (Tex. App.–-Austin 1999, writ

denied). If coverage exists for any portion of a suit, the insurer

must defend the insured in the entire suit. See id.

Texas courts apply the “eight corners” or “complaint

allegation” rule to determine whether an insurer has a duty to

defend. See Potomac Ins. Co. of Illinois v. Jayhawk Medical

Acceptance Corp., 198 F.3d 548, 551 (5th Cir. 2000). Under the

“eight corners” rule, courts must first look to the factual

allegations in the pleadings to ascertain whether the alleged

conduct potentially requires coverage. St. Paul Ins. Co., 999

S.W.2d at 884.

[A]n insurer’s contractual duty to defend must be

determined solely from the face of the pleadings, without

reference to any facts outside the pleadings. The duty

to defend arises when a third party sues the insured on

allegations that, if taken as true, potentially state a

cause of action within the terms of the policy.

Houston Petroleum Co. v. Highlands Ins. Co., 830 S.W.2d 153, 155

(Tex. App.–-Houston [1st Dist.] 1990, writ denied)(citations

omitted). The focus of this inquiry is on the facts alleged, not

on the actual legal theories. See Maayeh v. Trinity Lloyds Ins.

Co., 850 S.W.2d 193, 195 (Tex. App.–-Dallas 1992, no writ). “Where

the complaint does not state facts sufficient to clearly bring the

case within or without coverage, the general rule is that the

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insurer is obligated to defend if there is, potentially, a case

under the complaint within the coverage of the policy.” National

Union Fire Ins. Co. v. Merchants Fast Motor Lines, Inc., 939 S.W.2d

139, 141 (Tex. 1997). The factual allegations in a third party’s

complaint must be liberally construed in favor of the insured. See

Terra Int’l, Inc. v. Commonwealth Lloyd’s Ins. Co., 829 S.W.2d 270,

272 (Tex. App.–-Dallas 1992, writ denied).

After assessing the potential causes of action in the

pleadings, courts must determine whether the policy covers the

alleged conduct. Any ambiguity in an insurance policy is resolved

in favor of the insured. See National Union Fire Ins. Co. v.

Hudson Energy Co., 811 S.W.2d 552, 554 (Tex. 1991). If the terms

of the policy are not ambiguous, then the words must be given

their plain meaning. See Puckett v. U.S. Fire Ins. Co., 678 S.W.2d

936, 938 (Tex. 1984). “Language in insurance provisions is only

ambiguous if the court is uncertain as to which of two or more

meanings was intended.” Houston Petroleum Co., 830 S.W.2d at 155.

“If multiple interpretations are reasonable, the court must

construe the contract against the insurer . . ..” Travelers

Indemnity Co. v. Citgo Petroleum Corp., 166 F.3d 761, 769 (5th Cir.

1999).

B. The Factual allegations Against Green Tree

The relevant facts set out in Carona and Saenz’ eleventh

amended counterclaim are as follows:

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 . . . The debt collection activities of which Sylvia
Corona and Eduardo Saenz complain include frequent calls
to the homes and workplaces of Sylvia Corona, Eduardo
Saenz, and their families during 1986, 1987, 1988, 1989,
1990, 1991, 1992, and 1993, using abusive and rude
language. The calls were as frequent as three or more
times per week. Many times the callers threatened to
inform the employers of Sylvia Corona and Eduardo Saenz
that they were trying to collect a debt from Sylvia
Corona and Eduardo Saenz. The callers told Eduardo
Saenz’ mother that her son was delinquent in his payments
on a debt to GREEN TREE. The calls continued even after
Sylvia Corona and Eduardo Saenz and his mother told GREEN
TREE that the calls were making them sick and causing
them extreme mental anguish. On at least one occasion
GREEN TREE called and said they were going to go out to
the land and pick up the trailer while nobody was at
home.

Corona and Saenz pleaded causes of action for negligence, statutory

and common law unfair debt collection practices, and claims under

the Deceptive Trade Practices Act. The pleadings requested actual

damages, costs, and any other relief to which the claimants were

legally entitled.

C. The General Commercial Liability Policies

Green Tree was insured under numerous policies with St. Paul

during the eight years during which the alleged conduct occurred.

With a few exceptions, the language in the policies remained the

same.

ST. PAUL COMMERCIAL GENERAL LIABILITY POLICY CK06303193: JUNE
30, 1989 THROUGH JUNE 30, 1990

What This Agreement Covers

Personal injury and advertising injury liability. We’ll
pay amounts any protected person is legally required to
pay as damages for covered personal injury or advertising
injury that’s caused by an offense committed while this

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 agreement is in effect.

Personal Injury means injury, other than bodily injury,
caused by any of the following offenses that result from
your business activities, other than advertising,
broadcasting, publishing or telecasting done by of for
you:
-false arrest, detention, or imprisonment;
-malicious prosecution;
-wrongful entry or wrongful eviction;
-libel or slander;
-written or spoken material made public which belittles
the products or work of others;
-written or spoken material made public which violates an
individual’s right of privacy.

Right and duty to defend. We’ll have the right and duty
to defend any claim or suit for covered injury or damage
made or brought against any protected person . . ..

Claim means a demand in which damages are alleged.

Suit means a civil proceeding in which damages are
alleged. And it includes an arbitration proceeding for
such damages to which you must submit or submit with our
consent.

Injury or damage means bodily injury, personal injury,
advertising injury or property damage or fire damage.

Exclusions - What This Agreement Won’t Cover

Deliberately breaking the law. We won’t cover personal
injury or advertising injury that results if the
protected person knowingly breaks any criminal law.

Green Tree was also covered under an Umbrella Policy with St. Paul

through June of 1987. The Umbrella Policy contains the same

language as the above policy with two relevant exceptions. First,

the Umbrella Policy does not limit coverage for invasion of privacy

to “written or spoken material made public.” Second, the Umbrella

Policy does not have an exclusion from coverage for personal injury

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that results from the insured’s deliberate unlawful conduct.

D. St. Paul’s Duty to Defend

St. Paul argues that it was not obligated to defend Green Tree

because the claimants’ pleadings did not specifically allege an

offense covered by the personal injury terms of its policies. St.

Paul contends that its use of the word “offense” in the definition

of personal injury raises the level of pleading specificity that is

generally required to precipitate its duty to defend. According to

St. Paul, a third party’s pleadings must name a specific offense

listed in the personal injury definition before it has a duty to

pay the costs of the insured’s defense.

Under Texas law, a third party’s pleadings need not allege a

specific offense to evoke an insurer’s duty to defend. See St.

Paul Ins. Co., 999 S.W.2d at 886. The duty arises if the factual

allegations in a third party’s pleading potentially state a cause

of action covered under the insurance policy. See Houston

Petroleum Co., 830 S.W.2d at 155. St. Paul’s choice of the word

“offense” does not require a different standard. The term simply

refers to the causes of action listed under the personal injury

definition.4 Therefore, St. Paul had a duty to defend Green Tree

4
In context, the word “offense” is subject to only one reasonable
interpretation. If the literal definition of “offense” were
applied to the basic insurance policy, the insured would not have
coverage for personal injury. “Offense” means “a violation of law;
crime, often a minor one.” BLACK’S LAW DICTIONARY 1108 (7th ed. 1999).
St. Paul’s basic insurance policies exclude all personal injuries
resulting from the violation of criminal statutes. Because the

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if the factual allegations potentially stated a cause of action

listed under the policy’s definition of personal injury.

Numerous policies in effect during the period of the alleged

wrongful conduct define personal injury coverage as including

injuries resulting from an invasion of privacy. The factual

allegations in Corona and Saenz’ pleadings state that Green Tree

placed numerous telephone calls to Corona, Saenz, and Saenz’ mother

over a period of eight years. The pleadings alleged that the calls

were rude and abusive. In Donnel v. Lara, 703 S.W.2d 257, 259

(Tex. App.–-San Antonio, 1985, writ ref’d n.r.e.), the court of

appeals recognized that invasion of privacy included telephone

harassment.5 The plaintiffs in Donnel alleged that the defendant

“willfully . . . placed repeated phone calls to their residence at

unreasonable hours and in such a manner as would highly offend a

reasonable person of ordinary sensibilities.” Id. at 258. The

factual allegations in Corona and Saenz’ pleadings described

similar abusive telephone calls.6

definition of personal injury requires an offense, a literal
translation would preclude personal injury coverage. Therefore,
the only reasonable interpretation of “offense” in the context of
the policy is simply that the term refers to the acts listed in the
policy’s personal injury definition.
5
The Donnel decision was superseded on grounds that are not
relevant to this case. See Harkins v. Crews, 907 S.W.2d 51, 61
(Tex. App.–-San Antonio 1995, writ denied).
6
St. Paul argues that because the pleadings do not specifically
request damages for invasion of privacy, there is no injury for the
policy to cover. In Feed Store, Inc. v. Reliance Ins. Co., 774

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 St. Paul contends that these allegations essentially support

a claim for unfair debt collection practices and should not be

construed to substantiate a cause of action for invasion of

privacy. According to St. Paul, finding a potential cause of

action for invasion of privacy would overextend its duty to defend.

While courts may liberally interpret the allegations in a pleading

to determine whether the facts could potentially support a cause of

action, courts “may not read facts into the pleadings, may not look

outside the pleadings, and may not ‘imagine factual scenarios which

might trigger coverage.’” St. Paul Ins. Co., 999 S.W.2d at 885

(quoting National Union Fire Ins. Co. v. Merchants Fast Motor

Lines, Inc., 939 S.W.2d 139, 142 (Tex. 1997)). There is no need in

this case to imagine or invent a factual scenario that would evoke

coverage under St. Paul’s policy. The factual allegations in this

case clearly support a cause of action for invasion of privacy

under Texas law. Just because factual allegations may favor one

cause of action over another does not alleviate an insurer’s duty

to defend if the facts potentially state a cause of action covered

under the policy.

S.W.2d 73, 74-75 (Tex. App.–-Beaumont 1989, writ denied) the court
of appeals held that an insurer’s duty to defend did not arise when
a plaintiff sought only injunctive relief. The court concluded
that the phrase “for such other and further relief” in the
complaint did not change the suit in equity to a suit for damages.
The claimants in this case did not seek injunctive relief. St.
Paul’s duty to defend was not impeded by the absence of a specific
request for damages resulting from invasion of privacy.

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 St. Paul argues in the alternative that Green Tree knowingly

violated a criminal law.7 St. Paul’s basic commercial liability

policies exclude coverage for injuries arising from knowing

violations of penal statutes. The Umbrella Policy, however, does

not contain such an exclusion. The Umbrella Policy covers any

claim named in the policy that is not covered under the insured’s

basic insurance. Because there is no penal exclusion in the

Umbrella Policy, St. Paul had a duty to defend Green Tree in the

lawsuit.

III. Conclusion

If an insurer has a duty to defend any portion of a suit, the

insurer must defend the entire suit. See St. Paul Ins. Co., 999

S.W.2d at 884. Since St. Paul has a duty to defend Green Tree

based on personal injury coverage, there is no need to assess

whether the duty arose under the bodily injury provisions of the

policy. We therefore affirm the district court’s orders granting

Green Tree summary judgment.

AFFIRMED

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Under Texas statute, a “person commits an offense if, with
intent to harass, annoy, alarm, abuse, torment, or embarrass
another, he . . . causes the telephone of another to ring
repeatedly or makes repeated telephone communications anonymously
or in a manner reasonably likely to harass, annoy, alarm, abuse,
torment, embarrass, or offend another.” TEX. PEN. CODE ANN. §
42.07(a)(4) (Vernon 1999).

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