United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
February 18, 2005
FOR THE FIFTH CIRCUIT
Charles R. Fulbruge III
Clerk
______________________________
No. 04-20079
______________________________
LINCOLN GENERAL INS. CO.,
Plaintiff - Appellee
versus
CESAR REYNA d/b/a REYNA TRAVEL TOURS CO.;
JOEL QUINONES LOZANO,
Defendants - Appellees
versus
MAYRA LIZETH ARELLANO MEDINA, Individually as next friend of
Jorge Luis Garza Arellano and on behalf of the Estate of Jorge Alfonso
Garza Cantu; JOSE RODRIGO GARZA RAMOS; MARIA DEL SOCORRO
CANTU SERNA; MANUEL GUADALUPE ALANIZ MUNIZ; MARIA
BARTOLO OYERVIDEZ OYERVIDEZ, individually and on behalf of the
Estate of Manuel Guadalupe Alaniz Oyervidez,
Movants-Appellants
____________________________________________________
Appeal from the United States District Court
for the Southern District of Texas
____________________________________________________
Before WIENER and PRADO, Circuit Judges, and KINKEADE1, District Judge.
1
District Judge for the Northern District of Texas, Dallas Division, sitting by designation.
KINKEADE, District Judge:
This appeal stems from the entry of summary judgment in favor of Lincoln General Insurance
Company (“Lincoln”) in a declaratory judgment action seeking the district court’s determination of
Lincoln’s duty to defend Cesar Reyna (“Reyna”). For the following reasons, we AFFIRM the district
court’s grant of Lincoln’s summary judgment motion.
I. FACTUAL BACKGROUND
Lincoln issued a business auto policy to Reyna. This policy was effective February 7, 2002,
through February 7, 2003. It is undisputed that during the policy’s effective dates, a bus crash
occurred in Mexico involving a bus owned by Reyna and driven by one of his employees,
Defendant–Appellant, Joel Quinones Lozano (“Lozano”), and another vehicle. As a result of the
head-on collision, Jorge Cantu and Manuel Oyervidez (collectively, “victims”), both in the other
vehicle, were killed.
Mayra Lizeth Arellano Medina, Jose Rodrigo Garza Ramos, Maria Del Socorro Cantu Serna,
and Manuel Guadalupe Alaniz Muniz, all relatives of Mr. Cantu (collectively “Cantu Plaintiffs”), filed
suit in Texas state court against Reyna and Lozano on May 15, 2002. Lincoln informed Reyna that
it was denying coverage and would not be providing his defense in the state court action. Reyna
never filed an answer, and on September 11, 2002, the Cantu Plaintiffs obtained a default judgment
against Reyna and Lozano. On November 12, 2002, the state court entered a final judgment against
Reyna and his driver Lozano for approximately $13 million with Reyna liable for 90% of the
damages. In addition, the judgment transferred Reyna’s right to the insurance proceeds from the
Policy to the Cantu Plaintiffs.
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Lincoln filed the declaratory action that is the subject of this appeal on November 4, 2002.
Lincoln sought the federal district court’s determination of whether coverage for the damages and
loss resulting from the bus crash existed and, consequently, whether Lincoln was required to defend
Reyna. The Cantu Plaintiffs, as well as Maria Bartolo Oyervidez Oyervidez, on behalf of Mr.
Oyervidez, (collectively “Intervenors”) were permitted to intervene. Lincoln and Intervenors filed
cross-motions for summary judgment with the trial court ultimately granting Lincoln’s motion for
summary judgment.
II. STANDARDS OF REVIEW
A. Summary Judgment Standard
In reviewing a district court’s grant of summary judgment, this Court uses a de novo standard
and applies the same legal standards as the district court.2 Summary judgment is appropriate when
the pleadings, affidavits and other summary judgment evidence show that no genuine issue of material
fact exists and the moving party is entitled to judgment as a matter of law.3 The movant bears the
burden of identifying those portions of the record it believes demonstrate the absence of a genuine
issue of material fact.4 The burden then shifts to the nonmovant to show the existence of a genuine
fact issue for trial; however, the nonmovant may not rest upon allegations in the pleadings to make
such a showing.5 All evidence and reasonable inferences must be viewed in the light most favorable
2
American Home Assurance Co. v. United Space Alliance, LLC., 378 F.3d 482, 486 (5th
Cir. 2004).
3
FED.R.CIV.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
4
Celotex, 477 U.S. at 322-25.
5
Id. at 321-25; Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255-57(1986).
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to the nonmovant.6
B. Duty to Defend Standard
This Court examines whether Lincoln had a duty to defend Reyna using a de novo standard
of review.7 Under Texas law, an insurer’s duty to defend is determined by the “eight corners”
doctrine, or “complaint allegation rule”; in other words, the court looks only to the allegations in the
pleadings and the language of the insurance policy.8 Using this analysis, the allegations in the petition
are liberally interpreted.9
The “four co rners” of the complaint must allege facts that, if taken as true, could possibly
assert a claim within the scope of coverage in the “four corners” of the insurance policy; otherwise,
an insurer is not legally required to defend a suit against its insured.10 The court must look to the
alleged facts in the pleadings, not the legal theories being asserted.11 Any doubt regarding the duty
to defend is resolved in favor of the duty.12 However, if the only facts alleged are excluded from the
policy’s coverage, the insurer is not required to defend.13 It is the insured’s burden to establish that
6
United States v. Diebold, Inc., 369 U.S. 654, 655 (1962).
7
Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523, 527 (5th Cir. 2004).
8
Id. at 527-28; National Union Fire Ins. Co. of Pittsburgh, PA v. Merchants Fast Motor
Lines, Inc., 939 S.W.2d 139, 141 (Tex. 1997).
9
National Union Fire, 939 S.W.2d at 141.
10
Northfield, 363 F.3d at 528; see Enserch Corp. v. Shand Morahan & Co., Inc., 952
F.2d 1485, 1492 (5th Cir. 1992) (“If any allegation in the complaint is even potentially covered by
the policy then the insurer has a duty to defend its insured.”).
11
Northfield, 363 F.3d at 528; National Union Fire, 939 S.W.2d at 141.
12
Northfield, 363 F.3d at 528.
13
Id.
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a claim is potentially within the scope of coverage.14 Once the insured has established this, the burden
shifts to the insurer to show “that the plain language of a po licy exclusion or limitation allows the
insurer to avoid coverage of all claims, also within the confines of the eight corners rule.”15
III. DISCUSSION
Intervenors claim in their first issue the district court erred in granting Lincoln’s summary
judgment motion. In their second issue on appeal, Intervenors contend Lincoln’s standard business
auto policy requires it to provide a defense to Reyna for the negligent hiring, training, and supervision
claim. In their final issue on appeal, Intervenors argue, based on King v. Dallas Fire. Ins. Co.,16 that
a claim for negligent hiring, training, and supervision equates to an “accident” under the Policy,
thereby independently triggering coverage and a duty to defend.
Citing to the Texas Supreme Court in King,17 Intervenors claim the district court erred in
determining “accident” was rest ricted to an automobile collision and did not include coverage for
negligent hiring, training, and supervision. Irrespective of the bus crash occurring in Mexico, they
argue Lincoln’s duty to defend Reyna was triggered by Reyna’s actions of negligently hiring, training,
and supervising Lozano, which occurred in Texas within the coverage area, because his actions
constitute an “accident” under the Policy. Lincoln contends that because the bus crash occurred
outside the coverage area, under the language of the Policy, coverage was never triggered; therefore,
14
Id.
15
Id.
16
85 S.W.3d 185 (Tex. 2002).
17
Id.
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it was not required to defend Reyna.
A. Alleged Facts in State Court Petition
In their First Amended Original Petition (“Petition”) in state court, the Cantu Plaintiffs assert
separate claims of negligence against Lozano and Reyna. This Court must look beyond the claims
asserted, to the alleged facts.18 Paraphrasing those allegations, the Cantu Plaintiffs allege in the
Petition’s factual background that the bus crash, which killed the victims, occurred in Mexico. The
Cantu Plaintiffs also contend Lozano operated the bus in a negligent manner, causing the collision
and their damages. They add that his negligence was a breach of the duty to exercise ordinary care
in operating the bus “reasonably and prudently.” In their allegations against Reyna, they contend that
Reyna is vicariously liable for their damages, because of Lozano’s negligence. They also allege Reyna
is directly liable to them for their damages because he breached an independent duty of care in
negligently entrusting Lozano with the bus, failing to implement safety policies, failing to enforce
company safety policies, and negligently hiring, training, supervising, and retaining Lozano.
B. Policy Provisions
The policy explicitly sets forth the conditions which must be met in order to trigger coverage.
Coverage is triggered when “bodily injury or property damage” results from an “accident” and “from
the ownership, maintenance or use of a covered auto.” The policy defines “accident” as including
“continuous or repeated expo sure to the same conditions resulting in bodily injury or property
damage.” The accident or loss must occur within (1) the policy period and (2) the coverage territory.
The coverage territory is defined in the policy as the United States, territories and possessions of the
United States, Puerto Rico, and Canada.
18
See Northfield, 363 F.3d at 528.
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C. Analysis
Employing the “eight corners” doctrine, the issue before this Court is whether the facts, as
alleged in the state court pleadings, give rise to potential coverage under the Policy, thereby
triggering Lincoln’s duty to defend Reyna.
Intervenors contend Reyna’s actions in negligently hiring, training, and supervision Lozano
are an “accident” as defined by the Policy, separately triggering coverage and the duty to defend. As
support for their argument, Intervenors rely on the Texas Supreme Court case of King v. Dallas Fire
Ins. Co.,19 in which the court held a duty to defend existed because the claim against the insurer for
negligent hiring, training, and supervision was an “occurrence” under the policy regardless of the
underlying intentional conduct being excluded from coverage. They allege it is dispositive because
the language of the policy provision in King is nearly identical to the language in the Policy at issue.
Lincoln contends this case is more akin to Fidelity & Guaranty Ins. Underwriters, Inc. v. McManus,20
in which the court determined the insured had no duty to defend because the claim against the insured
for negligent entrustment could not exist without the underlying negligent conduct which was
excluded from coverage.
1. Fidelity & Guaranty Ins. Underwriters, Inc. v. McManus
In McManus, the insurer filed a declaratory judgment action against the insured to determine
the insurer’s duty to defend. The insured’s son loaned a bicycle to a friend, who subsequently
collided with another bicyclist. The cyclist sued the insured alleging negligent entrustment. The
insurance policy contained an exclusionary provision, stipulating that no coverage existed when use
19
85 S.W.3d 185 (Tex. 2002).
20
633 S.W.2d 787 (Tex. 1982).
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of the bicycle caused bodily injury “away from the resident premises.”21 The Texas Supreme Court
stated, “Essential to recovery, therefore, is negligent entrustment by the owner. . .of the
instrumentality, plus its negligent operation or use by the entrustee.”22 In other words, there would
have been no coverage-triggering accident of negligent entrustment claim but for the negligent
operation or use of the bicycle which was excluded from coverage.23 Therefore, no duty to defend
existed because the facts as alleged indicated the underlying conduct was excluded from coverage.24
2. King v. Dallas Fire Ins. Co.
In King, the insured brought a declaratory judgment action against its insurer seeking a
determination that the insurer had a duty to defend the insured under its commercial general liability
policy. The negligent hiring suit against the company arose out of the intentional assault of the victim
by the company’s employee. The issue before the King court was whether the employer’s negligent
hiring, training, and supervision was an “occurrence” under the policy when the employee’s
intentional conduct caused the injury. An exclusionary provision in the policy excluded coverage for
any intentional or expect ed injury or damage.25 The policy contained a separation-of-insureds
provision.26 The court stated that the exclusionary provision at issue “expressly states that whether
21
Id. at 788.
22
Id. at 790 (emphasis added).
23
Id.
24
Id.
25
King, 85 S.W.3d at 188.
26
Id.
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an occurrence was an accident depends on the insured’s standpoint.”27
The Texas Supreme Court looked to decisions from other jurisdictions in which those courts
“considered whether an employer’s negligent hiring, training, and supervision is an ‘occurrence’ when
an employee’s intentional conduct caused the alleged injury.”28 The King court addressed the cases
where the court had determined no duty to defend existed because the employee’s conduct was
intentional and therefore excluded. In making their determinations, those courts used a “but for” or
“arising out of” test, according to which no cause of action against the insured-employer would exist
“but for” the employee’s intentional conduct, which was excluded; therefore, no “occurrence” existed
to trigger coverage.29 The cases discussed by the King court involve injuries or damages resulting
from employee’s intentional conduct, not negligence. The King court noted that applying the “but
for” or “arising out of” standard in those scenarios with intentional conduct resulted in imputing the
actor’s intent to the insured, which was against the policy’s separation-of-insureds language.30
Instead, the court concluded it must look from the insured’s standpoint, as required by the language
of the policy, in determining whether the insured was negligent in contributing to the injury.31 In its
explanation, the court reasoned that “whether one who contributes to an injury is negligent is an
inquiry independent from whether another who directly causes the injury acted intentionally.”32 The
27
Id. at 189.
28
Id. at 190-91 (emphasis added).
29
See id.
30
Id. at 191-92.
31
Id.
32
Id.
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court concluded its discussion with a look at the evolution of the Commercial General Liability policy
which also focused on intentional conduct and its relation to the definition of “occurrence.”33
Notably, the King court did address its prior decision in McManus. It distinguished McManus
by concluding it was “inapposite” because it did not necessitate a determination of intent.34
Accordingly, they were not required “to consider the insured’s relationship to the event, because the
exclusion was premised on a readily determined fact–whether the recreational motor vehicle was
being used away from the residence.”35
3. Instant Appeal
We find that King is distinguishable from the instant appeal. In King, the court was faced with
an exclusionary provision that required it to determine whether the event was an occurrence from the
insured’s standpoint.36 Had the court not viewed it in this way, the result would have been imputing
the employee’s intentional conduct to the insured-employer which, as the court noted, would render
meaningless the intentional injury exclusion as well as ignore the policy language regarding intentional
injuries being viewed from the insured’s standpoint.37 As we read King with the court’s detailed
analysis, we conclude the court’s determination that negligent hiring, training, and supervision is an
occurrence applies in cases involving intentional conduct where the court is required to interpret
intent and from whose standpoint. Intervenors would have us conclude King intended the term
33
Id. at 192-93.
34
Id. at 189.
35
Id.
36
Id. at 189.
37
Id.
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“accident” to always include a claim for negligent hiring, training, and supervision regardless of the
type of employee conduct. However, to do so in cases involving injury-causing negligence, such as
this case, would call into question intent when there is none. By the mere definition, negligence does
not involve intent. In this case, intent is not at issue as it was in King, so we are not required to
determine intent of the insured. Consequently, King does not apply.
We find it of great significance that when given the opportunity, the King court did not
overrule McManus, instead distinguishing it on the grounds that intent was not called into question
in that case. Also noteworthy is the King court’s failure to discuss cases involving an employee’s
negligent conduct, such as Travelers Indemnity Co. v. Citgo Petroleum Corp.38 or Centennial Ins.
Co. v. Hartford Accident and Indemnity Co..39 The question of the insurer’s duty to defend arose
in both cases. In each case, a negligence claim was asserted against the insured-employer, and the
employee’s underlying conduct was negligent and excluded from coverage. In both cases, the courts,
including this Court, concluded no duty to defend existed because the negligence claim against the
insured-employer arose out of the excluded underlying negligent conduct.40 The King court expressly
chose to limit its decision to cases involving injury-causing intentional conduct by an employee.
As previously discussed, the King court was critical of courts which had applied the “but for”
or “arising out of” standard to situations involving similar issues to those in King. This included
critiquing this Court in prior opinions addressing whether negligent hiring, training, and supervision
38
166 F.3d 761 (5th Cir. 1999).
39
821 S.W.2d 192 (Houston [14th]–1991, no pet.)
40
Travelers, 166 F.3d at 771; Centennial, 821 S.W.2d at 195.
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was an “occurrence.”41 However, the Fifth Circuit cases cited in King all involve an employee’s
intentional conduct; none involve an employee’s negligent conduct, like Travelers.
McManus is more instructive in a case involving injury-causing negligence. In this case, intent
is not at issue just as it was not in McManus. There is no intentional conduct by Lozano to impute
to Reyna, so we need not interpret the language of intent. We conclude in cases involving injury
caused by negligence where intent is clearly not at issue, the “but for” or “arising out of” standard
still applies. Under the “but for” standard, there could be no cause of action against the employer but
for the employee’s negligent conduct, and where the employee’s conduct does not fall within the
scope of coverage, there is no occurrence or accident to trigger coverage and the duty to defend.42
The “but for” analysis applies in this case.
Although Intervenors assert claims against Reyna for which they allege he is directly liable for
their damages, we do not look merely to the claims asserted, but to the alleged facts.43 Looking at
this under the “eight corners” doctrine, there is no dispute the collision occurred within the Policy
period and in Mexico. The clear language of the Policy provides coverage for any accident that
occurs within the Policy period and within the coverage territory. Mexico is not included in the
Policy’s definition of the coverage territory. Reyna’s negligence would not exist but for the bus crash
in Mexico, for which there can be no coverage. As in McManus, the issue of whether there is
potential coverage, and consequently a duty to defend, is “premised on a readily determined fact,”
41
King, 85 S.W.3d at 190-91.
42
Id. at 191.
43
Northfield, 363 F.3d at 528.
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that is whether the event happened within the Policy period and coverage territory.44 The Policy
language provides that there is no coverage for injuries or damages resulting from an accident in
Mexico. That Reyna’s alleged negligence occurred in Texas is irrelevant because the cause of action
against him arises out of the bus crash in Mexico which does not fall within the coverage provisions.
Applying the “eight corners” doctrine, Lincoln is not required to defend Reyna because the only facts
alleged are those excluded from coverage.45
Because intent is not a question in this appeal, King is distinguishable and, therefore, not
dispositive as Appellants contend. Employing the “eight corners” doctrine as Texas law requires, the
facts as alleged in the Petition indicate they fall outside the scope of the Policy; therefore, Lincoln has
no duty to defend Reyna.46
IV. Conclusion
For the forgoing reasons, we hold Lincoln owes no duty to defend Reyna under these facts.
The district court’s grant of Lincoln’s summary judgment is hereby,
AFFIRMED.
44
King, 85 S.W.3d at 189.
45
See Northfield, 363 F.3d at 528.
46
See Northfield, 363 F.3d at 528; McManus, 633 S.W.2d at 790.
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