Taylor v. Travelers Insurance

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_____________________

No. 94-20423
Summary Calendar
_____________________

BRAD TAYLOR
d/b/a Taylor System of Houston,

Plaintiff-Appellant,
v.

TRAVELERS INSURANCE COMPANY,

Defendant-Appellee.

_________________________________________________________________

Appeal from the United States District Court
for the Southern District of Texas
(CA H 93 2342)
_________________________________________________________________
(November 11, 1994)
Before KING, JOLLY, and DeMOSS, Circuit Judges.

PER CURIAM:*

Appellant Brad Taylor appeals from the district court's grant

of summary judgment for Travelers Insurance Company ("Travelers")

on the issue of the duty to defend. We affirm the judgment of the

district court.

*
Local Rule 47.5 provides: "The publication of opinions
that have no precedential value and merely decide particular
cases on the basis of well-settled principles of law imposes
needless expense on the public and burdens on the legal
profession." Pursuant to that Rule, the court has determined
that this opinion should not be published.
 I. BACKGROUND

The Case Corporation ("Case") hired Brad Taylor through his

business, the Taylor System of Houston, to remove ferrous oxide

from hundreds of car exteriors that were damaged while parked at

the Case plant in Racine, Wisconsin. Taylor began the repairs at

the Case facility on April 11, 1989. Chemicals were used to remove

the ferrous oxide, but unfortunately, damage was caused to the

finish of many of the vehicles. Taylor attempted to repair the

damage in the summer of 1989, but Case was not satisfied. As a

consequence, Case sued Taylor in February of 1992, seeking

reimbursement for the cost of correcting Taylor's defective work

and a declaratory judgment that it did not owe Taylor on the

initial contract.

Taylor requested that Travelers defend him in the Case lawsuit

pursuant to Taylor's garage liability insurance policy. In

December 1992, Travelers refused to defend Taylor, claiming that

the Case lawsuit involved areas of excluded coverage under the

policy. After settling with Case, Taylor sued Travelers for Case's

recovery -- a recovery which, according to Taylor, resulted from

Travelers' refusal to defend and its denial of coverage. Travelers

removed the lawsuit to federal court, and filed a motion for

summary judgment on the issue of the duty to defend.

In a May 13, 1994 opinion, the district court granted

Travelers motion based on the "insured's work exclusion" and the

"bailment exclusion" found in Taylor's policy. As the district

court explained:

2
 The insurance excludes coverage for damage to property
that results from the work done on it by the insured.
Texas recognizes the validity of this exclusion. Case
sought to recover only for the damage to the cars' paint
from the cleaning done by Taylor. The insured's work
exclusion in the insurance contract covers it. Travelers
has no duty to defend Taylor against that claim.
. . .
Under another exclusion, there is no coverage for
property damage when the property is in the insured's
care, custody, or control. Texas courts have limited
this type of exclusion to damage done to the object of
the insured's work and other objects the insured "totally
and physically manipulates." Taylor performed the work
on Case's property, but Taylor had immediate supervision
of the vehicles. Being the subject of the repairs, the
finishes were an essential part of Taylor's work, so here
the work falls under the exclusion in the policy.

(citations omitted). Taylor appeals this grant of summary judgment

for Travelers.

II. STANDARD OF REVIEW

We review the district court's grant or denial of summary

judgment de novo, "reviewing the record under the same standards

which guided the district court." Gulf States Ins. Co. v. Alamo

Carriage Serv., 22 F.3d 88, 90 (5th Cir. 1994) (internal quotations

omitted). Summary judgment is proper "when no genuine issue of

material fact exists that would necessitate a trial." Id. In

determining on appeal whether the granting of summary judgment was

proper, we view all factual questions in the light most favorable

to the non-movant. See Lemelle v. Universal Mfg. Corp., 18 F.3d

1268, 1272 (5th Cir. 1994).

3
 Texas law governs this diversity action and informs the

interpretation of the insurance policy.1 See Fireman's Fund Ins.

Co. v. Murchison, 937 F.2d 204, 207 (5th Cir. 1991); Atlantic Mut.

Ins. Co. v. Truck Ins. Exch., 797 F.2d 1288, 1291-92 (5th Cir.

1986). Whether a liability insurer has a duty to defend is

generally reviewed de novo as a question of law. See, e.g.,

Fidelity & Guaranty Ins. Underwriters, Inc. v. City of Kenner, 894

F.2d 782, 783-85 (5th Cir. 1990).

III. ANALYSIS AND DISCUSSION

A. The "Eight Corners" Rule

Under Texas law, a court determines an insurer's duty to

defend "by examining the allegations in the petition filed against

the insured and the relevant insurance policy." Gulf States Ins.,

22 F.3d at 90. As one court described:

Under this analysis we cannot consider anything outside
(a) the policy and (b) the pleadings, even if there is
evidence tending to show [that] the suit is utterly
specious. The effect of this "eight corners rule" is to
minimize uncertainty in assessing a liability insurer's
duty, as well as to favor the insured in cases where the
merits of the action may be questionable.

Feed Store, Inc. v. Reliance Ins. Co., 774 S.W.2d 73, 74-75 (Tex.

App. -- Houston [14th Dist.] 1989, writ denied); see also American

Alliance Ins. Co. v. Frito-Lay, Inc., 788 S.W.2d 152, 153-54 (Tex.

App. -- Dallas 1990, writ dism'd) ("This [eight corners] rule

requires the trier of fact to examine only the allegations in the

complaint and the insurance policy in determining whether a duty to

1
The parties do not dispute that Texas law governs the
disposition of this appeal.

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defend exists. . . . The duty to defend is not affected by facts

ascertained before suit, developed in the process of litigation, or

by the ultimate outcome of the suit."). Similarly, the Texas

Supreme Court has noted that:

[a]n insurer is required to defend only those cases
within the policy coverage. Furthermore, the insurer is
entitled to rely on the plaintiff's allegations in
determining whether the facts are within the coverage.
If the petition only alleges facts excluded by the
policy, the insurer is not required to defend.

Fidelity & Guaranty Ins. Underwriters, Inc. v. McManus, 633 S.W.2d

787, 788 (Tex. 1982); see also Gulf States Ins., 22 F.3d at 90

("[W]hen the plaintiff's petition makes allegations which, if

proved, would place the plaintiff's claim within an exclusion from

coverage, there is no duty to defend."). Finally, it is important

to understand that "[i]t is not the cause of action alleged which

determines coverage but the facts giving rise to the alleged

actionable conduct." Adamo v. State Farm Lloyds Co., 853 S.W.2d

673, 676 (Tex. App. -- Houston [14th Dist.] 1993, writ denied),

cert. denied, 114 S. Ct. 1613 (1994). Simply put, "[i]f a petition

alleges facts that, prima facie, exclude the insured from coverage,

the insurer has no duty to defend." Id. at 677 (emphasis added).2

2
In his brief, Taylor asserts that Travelers should have
conducted a minimal investigation into the Case-Taylor lawsuit
before declining to defend. Such an investigation, however, is
not required under Texas law. As one court wrote:

[Appellants] contend that where there is a variance
between the allegations of a petition and the known or
ascertainable facts, the insurer cannot rely on the
allegations in the petition, but rather must ascertain
if the facts in reality fall within the exclusion
before declining to defend; that even though a petition
in a damage suit against the insured may have alleged

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 B. "Work You Performed" Exclusion

Taylor's garage insurance policy with Travelers contained the

following exclusion from coverage:

WORK YOU PERFORMED
Property damage to work you performed if the property
damage results from any part of the work itself or from
the parts, materials or equipment used in connection with
the work.3

This type of "business risk" exclusion is quite common in liability

policies, as such policies "provide protection to the insured for

personal injury or for property damage caused by the completed

product, but not for the replacement and repair of that product."

T.C. Bateson Constr. Co. v. Lumbermens Mut. Casualty Co., 784

S.W.2d 692, 694-95 (Tex. App. -- Houston [14th Dist.] 1989, writ

denied) (emphasis added); see also Travelers Ins. Co. v. Volentine,

578 S.W.2d 501, 503-04 (Tex. Civ. App. -- Texarkana 1979, no writ)

("[I]t has been uniformly held that a liability policy containing

such an exclusion does not insure the policyholder against

facts that relieved the insurer of its duty to defend,
the insurer is a under a duty to ascertain facts of the
cause of action before declining to defend. Such is
not our law.

Amundsen v. Great Central Ins. Co., 451 S.W.2d 277, 278 (Tex.
Civ. App. -- El Paso 1970, writ ref'd n.r.e.) (emphasis added).
3
The policy also defines "work you performed" as
including "work that someone performed for you." Thus, the use
of independent contractors to perform Taylor's work does not, by
itself, preclude application of the exclusion. See also T.C.
Bateson Constr. Co. v. Lumbermens Mut. Casualty Co., 784 S.W.2d
692, 695-96 (Tex. App. -- Houston [14th Dist.] 1989, writ denied)
(construing the language "on behalf of the named insured" in a
"Work You Performed" exclusion to include independent contractors
hired by the insured; otherwise, there would be policy coverage
for the completed operations of independent contractors, but not
for the work of the insured or his employees).

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liability to repair or replace his own defective work or product .

. . . "); Sarabia v. Aetna Casualty and Sur. Co., 749 S.W.2d 157,

157 (Tex. App. -- El Paso 1988, no writ) (same). The justification

for treating these risks differently "is that the insured can

control the quality of the goods and services he supplies, while

accidental injury to property or persons exposes him to almost

limitless liability." Bateson, 784 S.W.2d at 695. As the Bateson

court noted:

[T]he exclusions are designed to protect insurers from
contractors' attempts to recover funds to correct
deficiencies caused by the contractors' questionable
performance. Their use demonstrates the insurers' belief
that the cost of not performing well is a cost of doing
business and not considered part of the risk sharing
scheme for which general liability policies are written.

Id. Thus, a contractor "cannot recover from the insurer for his

own failure to perform his contract, but can recover for damage

other than to his own work, whether or not that work is defective."

Hartford Casualty Co. v. Cruse, 938 F.2d 601, 603 (5th Cir. 1991)

(emphasis added) (internal quotation omitted).

C. Case's Allegations

Of course, the "Eight Corners" rule and the "Work You

Performed" exclusion operate in conjunction, as there is no duty to

defend if the petition only alleges facts that exclude the insured

from coverage, such as facts that invoke the "Work You Performed"

exclusion. Thus, an examination of the allegations in Case's

complaint is necessary for a proper resolution of this appeal. The

following allegations are relevant to our determination:

9. In April of 1989, . . . Case entered into a contract
with Taylor to remove the ferrous oxide deposited on the

7
 automobile body surfaces by a chemical process involving
friction, which would not require repainting the
vehicles. Taylor guaranteed that the process would
remove the ferrous oxide from the vehicles and, at a
minimum, not harm the car finish, including the chrome on
the vehicle.

11. All of the work on the four hundred and forty (440)
damaged vehicles was performed by Taylor/Houston, by the
employees/owners, in Racine, Wisconsin . . . As a result
of faulty workmanship by the employees/owners of
Taylor/Houston, Taylor/Houston employees/owners returned
in July and August of 1989 for remedial work on damaged
vehicles.

12. Not only did the Taylor process not remove the
ferrous oxide deposited as represented by Mr. Brad Taylor
but . . . a chemical reaction occurred with the
materials used, under Wisconsin atmospheric conditions
prevailing at the time the work was performed, and, based
on information and belief, the skill of the applicators
of the chemical substances, [sic] serious damage was
caused to vehicle finishes, including the chrome of
vehicles . . .

14. In addition, Case has paid for the refinishing of
damaged surfaces of many of the vehicles or the
replacement of damaged parts incapable of being repaired,
such damage caused by Taylor's/Houston's breach of
contract and its technical, professional negligence or
malpractice.

Because of Taylor's alleged breach of contract and negligent

performance, Case requested 1) a declaratory judgment that Case

does not owe Taylor on the contract; 2) the repayment of funds

already advanced to Taylor; and 3) the reimbursement of funds

expended by Case to refinish or replace the damaged surfaces.

The determinative inquiry in a "Work You Performed" exclusion

analysis involves a definition of Taylor's work product. See,

e.g., Cruse, 938 F.2d 601, 603 (5th Cir. 1991) ("The decisive issue

here is definition of [the] work product."); Volentine, 578 S.W.2d

at 504 ("The decisive question then becomes: What was [the] work

8
product?"). In other words, the operative question is "what was

Taylor hired to do?"

Simply put, Taylor was hired to repair the exterior finishes

of the vehicles; hence, Taylor's work product was intended to be

"restored" exterior finishes. As mentioned, the petition alleges

that "Case entered into a contract with Taylor to remove the

ferrous oxide deposited on the automobile body surfaces by a

chemical process involving friction." Despite Taylor's contentions

and creative semantic arguments, the chemical process is not the

crucial element here; rather, the essence of Taylor's work was the

removal of the ferrous oxide deposits, or, stated differently, the

restoration of the finishes.

Moreover, the petition seeks only monetary damages related to

the repair or replacement of Taylor's defective work on the vehicle

finishes. As mentioned, the petition requests reimbursement for

the expenses of refinishing the surfaces damaged by Taylor, and for

the costs of replacing the damaged parts that could not be

repaired. Such requests for monetary relief all stem from Taylor's

defective work product -- the vehicle finishes. In short, Taylor

was hired to work on vehicle finishes, and damages were requested

only for the repair or replacement of the vehicle finishes. As

such, these claims fall directly into the "Work You Performed"

exclusion. See, e.g., Bateson, 784 S.W.2d at 694-95; Volentine,

578 S.W.2d at 503-04. Similarly, the petition also requests

repayment of the funds previously advanced to Case under the

contract. This relief also falls directly into the "Work You

9
Performed" exclusion from coverage, as an insured "cannot recover

from the insurer for his own failure to perform his contract."

Cruse, 938 F.2d at 603. Thus, analyzing the "Eight Corners" rule

and the "Work You Performed" exclusion in conjunction, we conclude

that the allegations in Case's petition are directly within the

scope of the coverage exclusion. As such, Travelers had no duty to

defend.4

Taylor also asserts that he should be given "the benefit of

the doubt" in this case because insurance policies are to be

construed strictly against the insurer and in favor of the insured.

While Taylor correctly states the general rule, this "benefit of

the doubt" is only invoked when the policy provisions are

ambiguous. See, e.g., Gulf Chemical & Metallurgical Corp. v.

Associated Metals & Minerals Corp, 1 F.3d 365, 369 (5th Cir. 1993)

("[W]hen the language of a policy is susceptible to more than one

construction, the `polic[y] should be construed strictly against

the insurer and liberally in favor of the insured.'") (quoting

Barnett v. Aetna Life Ins. Co., 723 S.W.2d 663, 666 (Tex. 1987)).

In this case, however, the policy provisions, including the

exclusions, are not ambiguous. More importantly, the policy

provisions themselves are not challenged by Taylor; rather, Taylor

seems to assert that the allegations in Case's petition are

ambiguous. Aside from the fact that we find no ambiguity in the

4
Because we find that the "Work You Performed" exclusion
supports the summary judgment in this case, we do not decide
whether the "Care, Custody, or Control" or the "Contractual"
exclusions would have been applicable as well.

10
pleadings, some courts have not afforded a "benefit of the doubt"

in construing pleadings. As the Feed Store court explained:

[A]ppellant seeks to transform the rule of contra
proferentum out of the realm of contract interpretation
and into the area of construing pleadings. . . . Yet the
law is, and always has been, otherwise. There is good
reason to construe a printed form against its author, and
the law encourages an insurance company to think
carefully about its draftsmanship. But it takes a great
leap to transform this rule into one which construes a
third party's pleadings strictly against the insurance
company, a leap we simply cannot make.

774 S.W.2d at 75.

IV. CONCLUSION

For the foregoing reasons, the district court's grant of

summary judgment for Travelers on the duty to defend is AFFIRMED.

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