IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
June 2, 2008
No. 07-40727 Charles R. Fulbruge III
Clerk
DAVIS-RUIZ CORPORATION, doing business as Advantage Inspection
Plaintiff - Appellant
v.
MID-CONTINENT CASUALTY COMPANY
Defendant - Appellee
MID-CONTINENT CASUALTY COMPANY
Plaintiff - Counter-Defendant - Appellee
v.
DAVIS-RUIZ CORPORATION, doing business as Advantage Inspection
Defendant - Counter-Claimant - Appellant
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 2:06-CV-00350
USDC No. 2:06-CV-00315
Before SMITH and PRADO, Circuit Judges, and LUDLUM, District Judge.*
*
District Judge of the Western District of Texas, sitting by designation.
No. 07-40727
PER CURIAM:**
This case involves a dispute between a third-party defendant in a lawsuit
and the third-party defendant’s insurer concerning whether the insurer has a
duty to defend the third-party defendant in the suit against it. The district court
granted summary judgment in favor of the insurer, finding that there was no
duty to defend because none of the claims against the third-party defendant
were covered under its insurance policy. For the following reasons, we
REVERSE the district court’s grant of summary judgment and REMAND for
further proceedings.
I. FACTUAL AND PROCEDURAL BACKGROUND
On October 17, 2002, Lang Williamson (“Williamson”) was injured while
working on a storage tank belonging to Marathon Ashland Petroleum
(“Marathon”). He alleged that the ladder attached to the tank broke while he
was standing on it, causing him to fall and sustain injuries. Williamson sued
Marathon in Illinois state court (“the Williamson suit”), alleging that Marathon
acted negligently by, inter alia, failing to provide Williamson with a safe
workplace, failing to properly inspect the ladder for defects, failing to warn
Williamson of the dangerous conditions existing on the storage tank, and failing
to supervise its subcontractors in connection with services performed under
various contracts.
After Williamson sued Marathon, Marathon filed a third-party complaint
against Appellant Davis-Ruiz Corporation, d/b/a Advantage Inspection
(“Advantage”), the company that had inspected the storage tank and ladder,
seeking contribution and indemnity for Williamson’s claims. In the third-party
complaint, Marathon alleged that on October 14, 2002, pursuant to a contract
**
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
2
No. 07-40727
with Marathon (the “Services Contract”), Advantage had inspected the storage
tank and ladder at issue in the Williamson suit and submitted a form to
Marathon indicating that the ladder had been inspected and was “acceptable.”
Marathon also listed the allegations Williamson had made against it and
specifically alleged that several of them related to the inspection of the ladder:
the claims of failure to properly inspect the ladder, failure to warn of the
dangerous conditions existing on the storage tank, failure inspect the work site
for safety, and failure to ensure that the ladder was properly maintained.
Marathon claimed it was entitled to contribution because of Advantage’s
negligence and because Advantage violated the Services Contract, in which
Advantage promised to furnish experienced personnel and supervision, assumed
responsibility for the quality of its work, and asserted that it was experienced
and possessed the skills and resources to perform its work. Marathon also
sought express indemnity under indemnification provisions in the Services
Contract and implied indemnity under Illinois law.
After Advantage was named as a third-party defendant in the Williamson
suit, Advantage requested that its insurer, Appellee Mid-Continent Casualty
Company (“Mid-Continent”), defend it in the suit. Advantage holds a general
commercial liability policy issued by Mid-Continent (the “policy”). Mid-
Continent refused to defend Advantage, claiming that three exclusions in the
policy applied to the claims against Advantage and thus it had no duty to defend.
Both Mid-Continent and Advantage then filed lawsuits, and the lawsuits were
eventually consolidated in federal court.1 By agreement of the parties, the
district court converted the parties’ pleadings into competing motions for
1
Mid-Continent originally filed an action in federal court seeking a declaratory
judgment that it had no duty to defend or to pay money. Advantage originally filed a
complaint in Texas state court alleging breach of contract, breach of the duty of good faith and
fair dealing, and violations of the Texas Insurance Code and the Texas Deceptive Trade
Practices and Consumer Protection Act. Advantage’s action was removed to federal court, and
the district court consolidated the two actions.
3
No. 07-40727
summary judgment on the issue of Mid-Continent’s duty to defend Advantage.
The district court held that under the terms of the insurance policy, all of
Marathon’s claims against Advantage were excluded from coverage by a single
exclusion, the Designated Professional Services exclusion, and thus Mid-
Continent had no duty to defend Advantage. The court granted summary
judgment in favor of Mid-Continent, and Advantage appeals.
II. JURISDICTION AND STANDARD OF REVIEW
The district court had jurisdiction over this diversity action pursuant to
28 U.S.C. § 1332. This court has jurisdiction over this appeal under 28 U.S.C.
§ 1291. This court reviews a grant of summary judgment de novo. Canutillo
Indep. Sch. Dist. v. Nat’l Union Fire Ins. Co., 99 F.3d 695, 700 (5th Cir. 1996).
The district court’s interpretation of an insurance contract is a question of law
that this court also reviews de novo. Id.
III. DISCUSSION
A. Applicable law
The parties agree that Texas law applies to this case. To determine
whether an insurer has a duty to defend its insured, Texas courts follow the
“eight corners” or “complaint allegation” rule. Id. at 701; GuideOne Elite Ins. Co.
v. Fielder Rd. Baptist Church, 197 S.W.3d 305, 308 (Tex. 2006). Under this rule,
we consider only two documents in determining whether there is a duty to
defend: the policy and the pleadings of the third-party claimant. GuideOne, 197
S.W.3d at 308. The insurer has a duty to defend “as long as the complaint
alleges at least one cause of action within the policy’s coverage.” Canutillo, 99
F.3d at 701. In applying the eight corners rule, Texas courts liberally construe
allegations in favor of the insured. GuideOne, 197 S.W.3d at 308. Finally, Texas
courts “resolve all doubts regarding the duty to defend in favor of the duty.”
King v. Dallas Fire Ins. Co., 85 S.W.3d 185, 187 (Tex. 2002).
4
No. 07-40727
In interpreting an insurance contract, Texas courts use general rules of
contract interpretation. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. CBI
Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995). To determine the scope of
coverage, courts “examine the policy as a whole to ascertain the true intent of
the parties.” Utica Nat’l Ins. Co. of Tex. v. Am. Indem. Co., 141 S.W.3d 198, 202
(Tex. 2004). In construing policy language, the court should read the policy as
a whole and “must give effect to all contractual provisions so that none will be
rendered meaningless.” Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154,
157 (Tex. 2003); see also Tex. Farm Bureau Mut. Ins. Co. v. Sturrock, 146 S.W.3d
123, 134 (Tex. 2004). Texas courts do not favor exclusions from coverage and
will strictly construe them against the insurer. State Farm Lloyds v. Marchetti,
962 S.W.2d 58, 61 (Tex. App. 1997). In construing an exclusionary clause
susceptible of more than one reasonable interpretation, “[t]he court must adopt
the construction of an exclusionary clause urged by the insured as long as that
construction is not unreasonable, even if the construction urged by the insurer
appears to be more reasonable or a more accurate reflection of the parties’
intent.” Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. Hudson Energy Co., 811
S.W.2d 552, 555 (Tex. 1991); see also Utica, 141 S.W.3d at 202.
B. Whether any of the claims against Advantage are covered under
the policy
Advantage essentially makes three arguments in support of its assertion
that Marathon has alleged covered claims against it. First, Advantage asserts
that the claims based on its allegedly defective inspection services are covered
by the policy and do not fall within any of the policy’s services-related exclusions.
Second, Advantage contends that some of the claims against it are not based on
its inspection services at all and thus could not possibly be excluded by the
services-related exclusions. Third, Advantage argues that the express indemnity
claim against it is covered because it falls within the “insured contract”
5
No. 07-40727
exception to the contract liability exclusion. Because we agree with Advantage’s
first argument and find that at least some of the services-related claims against
Advantage are covered, we need not address its second and third arguments.
Mid-Continent does not dispute that the claims based on Advantage’s
inspection services fall within the policy’s general coverage provision.2 However,
Mid-Continent maintains that the district court properly found that the
Designated Professional Services exclusion applies to all of the claims against
Advantage. In addition, in Mid-Continent’s letter denying coverage to
Advantage, Mid-Continent cited two additional exclusions related to claims
based on services: the Professional Liability endorsement’s exclusion for claims
based on express or implied warranties, and the Testing or Consulting Errors
and Omissions exclusion. We examine each of the three possibly relevant
exclusions to determine whether the policy covers the claims against Advantage.
1. The Designated Professional Services exclusion
This exclusion provides, in relevant part,
2
This provision states,
[Mid-Continent] will pay those sums as the insured becomes legally obligated
to pay as damages because of “bodily injury” or “property damage” to which this
insurance applies. [Mid-Continent] will have the right and duty to defend the
insured against any “suit” seeking those damages. However, [Mid-Continent]
will have no duty to defend the insured against any “suit” seeking damages for
“bodily injury” or “property damage” to which this insurance does not
apply. . . . This insurance applies to “bodily injury” and “property damage” only
if [] [t]he “bodily injury” or “property damage” is caused by an “occurrence” that
takes place in “coverage territory.”
The policy defines “occurrence” generally as “an accident, including continuous or repeated
exposure to substantially the same general harmful conditions.”
6
No. 07-40727
SCHEDULE
Description of Professional Services:
(If no entry appears above, information required to complete this
endorsement will be shown in the Declarations as applicable to this
endorsement.)
With respect to any professional services shown in the Schedule, the
following exclusion is added to [the policy’s list of exclusions]:
This insurance does not apply to “bodily injury,” “property damage,”
or “personal and advertising injury” due to the rendering of or
failure to render any professional service.
The district court read this exclusion as applying to all bodily injury arising from
the rendering or failure to render any “professional service.” The court noted
that although the term “professional service” is not defined in the policy, the
term has been given meaning by Texas courts:
[A] professional must perform more than an ordinary task to
perform a professional service. To qualify as a professional service,
the task must arise out of acts particular to the individual’s
specialized vocation. We do not deem an act of professional service
merely because it is performed by a professional. Rather, it must be
necessary for the professional to use his specialized knowledge or
training.
Atl. Lloyd’s Ins. Co. of Tex. v. Susman Godfrey, L.L.P., 982 S.W.2d 472, 476-77
(Tex. App. 1998). The district court concluded that under the Texas courts’
definition, Advantage’s inspection of the tank and ladder was a professional
service. The court held that because Marathon’s allegations were all based on
Advantage’s inspection of the tank and ladder, Marathon’s claims were all
excluded by the Designated Professional Services exclusion.
Advantage argues that in holding that the Designated Professional
Services exclusion applies to any “professional service,” the district court
7
No. 07-40727
overlooked a key part of the exclusion. We agree. When read in full, the
exclusion states, “With respect to any professional services shown in the
Schedule . . . [t]his insurance does not apply to ‘bodily injury’ . . . due to the
rendering of or failure to render any professional service.” (emphasis added).
Thus, the exclusion does not apply to all professional services, but only to those
shown in the Schedule. The space in the Schedule following “Description of
Professional Services” is left blank. However, below the blank space, the
exclusion states, “If no entry appears above, information required to complete
this endorsement will be shown in the Declarations as applicable to this
endorsement.” Thus, we must look to the Declarations, not to the general
meaning of “professional services,” to determine which professional services are
within the scope of the exclusion.3 See, e.g., Lamar Homes, Inc. v. Mid-Continent
Cas. Co., 242 S.W.3d 1, 13 (Tex. 2007) (emphasizing that the duty to defend
must be determined based on “the policy’s actual language”).
Unfortunately, neither the Commercial General Liability Coverage Part
Declaration (the “CGL Declaration”) nor the Policy Declaration applicable to the
entire policy (the “General Declaration”) provides a clear list of the professional
services to which this exclusion applies. They both describe Advantage’s
business as follows: “Business Description: Radi[o]grapher Program.”4 In
addition, the CGL Declaration contains a listing of Advantage locations and uses
the language “Pipe Testing & Consultant” in reference to Advantage. The
3
We note that although Advantage articulated this position in its briefs and at oral
argument, Mid-Continent has offered no response. Instead, it mischaracterizes Advantage’s
position as being that the term “professional services” is vague and ambiguous. It then repeats
the district court’s rationale for why the exclusion should be interpreted to include the services
at issue here.
4
A “radiograph” is “[a]n image produced on a radiosensitive surface, such as a
photographic film, by radiation other than visible light, especially by x-rays passed through
an object or by photographing a fluoroscopic image.” AMERICAN HERITAGE DICTIONARY OF THE
ENGLISH LANGUAGE (4th ed. 2000).
8
No. 07-40727
General Declaration also lists by number twenty-nine forms and endorsements
to be included in the policy.
Advantage contends that because both Declarations describe Advantage’s
business as a “Radi[o]grapher Program” and mention no other professional
services,5 the Declarations should be read as limiting the exclusion’s
applicability to those professional services that involve radiography. We find
this to be a reasonable interpretation of the exclusion, given the exclusion’s
directive that the Declarations will contain the information required to complete
the endorsement. We also note that Mid-Continent offers no interpretation
other than the one offered by the district court, nor can we identify any
reasonable alternative interpretation. We therefore adopt Advantage’s
interpretation of the exclusion and find that the exclusion applies only to claims
related to professional services that involve radiography. See Utica, 141 S.W.
3d at 202 (quoting Hudson Energy Co., 811 S.W.2d at 555) (“The court must
adopt the construction of an exclusionary clause urged by the insured as long as
that construction is not unreasonable.”). The inspection of the storage tank and
ladder that underlies the claims against Advantage involved only visual
inspection, not radiography. Thus, although the inspection may have been a
professional service, it was not among those professional services described in
the exclusion, and the exclusion does not bar coverage of any of the claims
against Advantage related to the inspection.
2. The Professional Liability endorsement’s exclusion
The Professional Liability endorsement states that “‘Bodily injury’ or
‘property damage’ arising out of the rendering or failure to render professional
services as described shall be deemed to be caused by an ‘occurrence,’” thereby
5
With regard to the use of the language “Pipe Testing & Consultant” in reference to
Advantage, Advantage states that testing and consulting with respect to pipes are typically
the subject of radiographic analysis and in any case have nothing to do with the visual
inspection of a tank and ladder at issue in this case.
9
No. 07-40727
extending coverage to claims related to those professional services. The
professional services described in the endorsement are “Testing & Consulting.”
However, the endorsement excludes coverage for “[e]xpress or implied
warranties or guarantees.” Advantage acknowledges that some of Marathon’s
claims against it might involve a breach of warranty—for example, the claim
that Advantage violated the Services Contract, in which it asserted that it was
experienced in its work and possessed the skills and resources to perform its
work. However, it contends that other claims plainly do not involve
warranties—for example, failure to properly inspect the ladder, failure to warn
Marathon of dangerous conditions on the storage tank, and failure to ensure that
the ladder was properly supported, repaired, and maintained.
Mid-Continent offers no arguments in favor of finding that this exclusion
applies to Marathon’s claims. We agree with Advantage that on their face, the
allegations of failure to inspect and failure to warn do not appear to involve
“express or implied warranties.” Construing them to do so would be
inappropriate, especially given that this court is required to “resolve all doubts
regarding the duty to defend in favor of the duty.” King, 85 S.W.3d at 187.
Thus, this exclusion does not bar coverage of all of the claims based on
Advantage’s inspection services.
3. The Testing or Consulting Errors and Omissions exclusion
The Testing or Consulting Errors and Omissions exclusion (“Testing or
Consulting exclusion”) provides,
This insurance does not apply to “bodily injury”, “property damage”
or “personal and advertising injury” arising out of:
1. An error, omission, defect or deficiency in:
a. Any test performed; or
b. An evaluation, a consultation or advice given, by
or on behalf of any insured;
2. The reporting of or reliance upon any such test,
evaluation, consultation or advice; or
10
No. 07-40727
3. An error, omission, defect or deficiency in experimental
data or the insured’s interpretation of that data.
The policy does not define “test,” “evaluation,” or “consultation,” and Mid-
Continent offers no arguments in favor of finding that those terms cover the
inspection at issue here. Under at least some definitions of those terms,
however, this exclusion might be interpreted to encompass the visual inspection
of the storage tank and ladder.6 Thus, were we to interpret this exclusion,
standing alone, based only on a broad reading of its plain language, we might
determine that it barred coverage of the claims related to Advantage’s visual
inspection of the storage tank and ladder. However, “[i]n addition to applying
the plain meaning of the policy’s language, we must also read the policy as a
whole, giving effect to each provision.” Schaefer, 124 S.W.3d at 159.
Here, a broad reading of the Testing or Consulting exclusion that
encompasses all testing and consulting is impossible to reconcile with the rest
of the policy. The Professional Liability endorsement extends coverage, subject
to certain specified exclusions, to “‘bodily injury’ or ‘property damage’ arising out
of the rendering or failure to render professional services as described.” That
endorsement describes the professional services as “testing and consulting.”
Therefore, if we construed the Testing and Consulting exclusion as barring
coverage of claims based on any “testing” or “consulting,” the Professional
Liability endorsement would have no effect whatsoever, and the coverage it
purports to extend would be illusory. Texas courts disfavor such constructions.
See ATOFINA Petrochemicals, Inc. v. Cont’l Cas. Co., 185 S.W.3d 440, 444 (Tex.
2005) (adopting the insured’s construction of an exclusion because the insurer’s
6
The dictionary definitions of “test” include “a procedure for critical evaluation; a means
of determining the presence, quality, or truth of something.” AMERICAN HERITAGE DICTIONARY
OF THE ENGLISH LANGUAGE (4th ed. 2000). The definitions of “evaluate” include “To ascertain
or fix the worth of” and “To examine and judge carefully; appraise.” Id. The definitions of
“consult” include “To seek advice or information of,” “To refer to,” and “To take into account.”
Id.
11
No. 07-40727
interpretation “would render coverage under [an] endorsement largely illusory”);
Sturrock, 146 S.W.3d at 134 (interpreting “motor vehicle accident” to apply to a
person’s tripping over the threshold of the door of a pickup truck, in part because
to exclude such accidents “would render the definition of ‘covered person’
meaningless, which is contrary to basic rules of contract interpretation”); Trinity
Universal Ins. Co. v. Cowan, 945 S.W.2d 819, 828 (Tex. 1997) (rejecting a
proposed interpretation in part because it “would render insurance coverage
illusory for many of the things for which insureds commonly purchase
insurance”).
Advantage proposes that in order to harmonize the Testing or Consulting
exclusion with the Professional Liability endorsement, we should read the
exclusion as applying only to those testing and consulting services that do not
rise to the level of “professional” testing and consulting services. After
considering the policy as a whole, we find that applying that interpretation is a
reasonable way of giving effect to both the Testing or Consulting exclusion and
the Professional Liability endorsement. Because we “must adopt the
construction of an exclusionary clause urged by the insured as long as that
construction is not unreasonable, even if the construction urged by the insurer
appears to be more reasonable or a more accurate reflection of the parties’
intent,” Hudson Energy Co., 811 S.W.2d at 555, we adopt Advantage’s
construction. Under this reading, the inspection at issue here is not excluded:
as the district court found and both parties agree, the inspection at issue here
involved “professional services” as defined by Texas law.
In sum, none of the three services-related exclusions, either alone or in
concert, exclude all of the claims against Advantage that are based on its
inspection services. Thus, we need not address whether Marathon also alleged
non-services related claims not covered by the exclusions or whether the express
indemnity claim is covered under an exception to the insured contract exclusion.
12
No. 07-40727
IV. CONCLUSION
The district court erred when it applied the Designated Professional
Services exclusion to Marathon’s claims against Advantage. Moreover, no other
policy exclusions exclude all of the claims against Advantage. Therefore, Mid-
Continent has a duty to defend Advantage. Accordingly, we REVERSE the
district court’s grant of summary judgment and REMAND for further
proceedings.
REVERSED and REMANDED.
13