Case: 08-20665 Document: 00511053462 Page: 1 Date Filed: 03/16/2010
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
March 16, 2010
No. 08-20665 Charles R. Fulbruge III
Clerk
WILLBROS RPI, INC.
Plaintiff - Appellant - Cross
Appellee
v.
CONTINENTAL CASUALTY COMPANY
Defendant - Third Party Plaintiff -
Appellee - Cross Appellant
v.
LEXINGTON INSURANCE COMPANY
Third Party Defendant - Appellant -
Cross Appellee
Appeals from the United States District Court
for the Southern District of Texas
Before WIENER, GARZA, and ELROD, Circuit Judges.
PER CURIAM:
Willbros RPI, Inc. (“Willbros”) appeals on various grounds from the district
court’s grant of summary judgment in its declaratory judgment action against
Continental Casualty Company (“CNA”). CNA cross-appeals. These appeals ask
us to resolve three questions related to insurance obligations resulting from a
botched pipeline drilling project: (1) whether CNA’s professional services
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No. 08-20665
exclusion applied; (2) whether CNA’s coverage was excess and (3) whether
Willbros’s indemnity claim was non-justiciable. We agree with the district
court’s resolution of all but the second issue.
I
Shell Pipeline Company, L.P. (“Shell”) hired Willbros, as general
contractor, to construct seventy-five miles of pipeline (the “Bengal project”).
Willbros hired Harding Road Boring, Inc. (“Harding”), as subcontractor, to
perform directional drilling. Harding, in turn, subcontracted various aspects of
the job. During the drilling process, one or more pipelines owned by ExxonMobil
Pipeline Company (“EMPCo”) were damaged. Subsequently, EMPCo and Exxon
Mobile Corporation (collectively “Exxon”) commenced suit against Shell,
Willbros, Harding, and others (the “underlying suit”), alleging that the
defendants were negligent in their duties to “analyze, review, supervise,
construct, operate, and monitor the work so that EMPCo’s pipelines would not
be damaged.”
Shell tendered its defense and indemnity to Willbros, who accepted the
same. Willbros, in turn, tendered its defense and indemnity, as well as that of
Shell, to Harding and Harding’s insurer, CNA. CNA previously issued Harding
a package policy (the “CNA Policy”). The CNA Policy contains a “blanket”
endorsement which extends additional insured coverage, generically, to any
person or organization with whom Harding had agreed to add as an additional
insured. The district court determined that Willbros qualifies as one such
insured by virtue of a written agreement entered into by Harding and Willbros’s
predecessor, Rogers & Phillips, Inc. (“RPI”).1
1
Prior to the events giving rise to this suit, Harding and RPI entered into a Master
Service Agreement (“MSA”) under which RPI, as contractor, routinely awarded, and Harding
routinely accepted, subcontractor work. Among other things, the MSA required Harding to
carry liability insurance and to add RPI as an additional insured under all such policies. The
MSA states that it is “binding upon and insure [sic] to the benefit of the parties hereto and
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CNA, however, refused to assume Willbros and Shell’s defense and denied
Willbros’s indemnity demands, contending that it is unclear: (1) whether
Willbros, in fact, qualifies as an additional insured under the CNA Policy; (2)
whether various provisions exclude coverage; and (3) whether coverage is excess,
primary, or co-primary. Nevertheless, it offered to pay fifty percent of Willbros’s
defense fees and costs under a reservation of rights, but offered nothing to Shell.
Meanwhile, Willbros filed notice of the underlying suit with its own
insurer, Lexington, which previously issued Willbros a commercial general
liability policy (the “Lexington Policy”). Lexington accepted the tender and
began paying defense costs.
Willbros subsequently filed the declaratory judgment suit that forms the
basis of this appeal against CNA, seeking a declaration that: (1) Willbros is
entitled to 100 percent defense and indemnity under the CNA Policy, and (2)
Willbros is entitled to 100 percent defense and indemnity for Shell under the
CNA Policy. In response, CNA filed a counter-suit, seeking a declaration that:
(1) it has no duty to defend or indemnify Willbros or Shell, and (2) if an
obligation to defend is owed, it has no duty to defend beyond fifty percent of
defense costs that it has already voluntarily offered to pay under a reservation
of rights. Finally, CNA filed a third-party complaint against Lexington seeking
virtually the same declaratory relief.
On cross-motions for summary judgment, the district court rejected CNA’s
contention that the professional services exclusion provided a basis to deny
coverage, finding that the underlying suit alleged non-professional negligence
as a basis for liability. The district court also found that CNA had a duty to
defend Willbros, but that the duty did not begin until the exhaustion of the
their respective successors and assigns.” The district court found, and the parties do not
dispute, that Willbros, as successor to RPI, succeeded to all rights and benefits previously
enjoyed by RPI under the MSA.
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Lexington Policy. This result flowed from the district court’s determination that
the Lexington Policy was primary and that the CNA Policy was excess. Finally,
the district court found that the duty to defend and the duty to indemnify are
separate and distinct obligations and that the latter does not arise until the
insured has been adjudicated, whether by judgment or settlement, to be legally
responsible for damages covered by the policy. Because the underlying suit was
ongoing at the time of its decision, the district court determined that Willbros’s
indemnity claims were non-justiciable. This appeal followed.
II
We review a district court’s grant of summary judgment de novo, applying
the same standards as the district court. Mongrue v. Monsanto Co., 249 F.3d
422, 428 (5th Cir. 2001). Interpretation of an insurance policy is a question of
law. Gladney v. Paul Revere Life Ins. Co., 895 F.2d 238, 241 (5th Cir. 1990).
A
CNA contends that the professional services exclusion in its policy bars
coverage of Willbros’s defense in the underlying lawsuit. According to CNA, the
exclusion applies because the property damage in question arose out of errors in
the preparation and/or approval of the surveyor’s plans. CNA maintains that
the preparation and approval of plans qualifies as a professional service and that
the damage alleged in the complaint would not have occurred but for the
performance of these activities.
To determine whether an exclusion provision applies, the allegations in
the underlying suit must be considered in light of the provisions of the insurance
policy. Heyden Newport Chem. Corp. v. S. Gen. Ins. Co., 387 S.W.2d 22, 24 (Tex.
1965). Because the only two relevant documents are the insurance policy and
the pleadings of the underlying suit, the inquiry is often referred to as the Eight
Corners Rule. King v. Dallas Fire Ins. Co., 85 S.W.3d 185, 187 (Tex. 2002). In
applying the Eight Corners Rule, the allegations as set forth in the complaint
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are liberally construed “without reference to their truth or falsity, to what the
parties know or believe to be the true facts, or to a legal determination of the
true facts.” See Duncanville Diagnostic Ctr., Inc. v. Atl. Lloyd’s Ins. Co. of Texas,
875 S.W.2d 788, 789 (Tex. App.)Eastland 1994, writ denied) (citing Heyden
Newport Chem. Corp., 387 S.W.2d at 24-25). In reviewing the underlying
pleadings, we focus on the factual allegations that show the origin of the
damages rather than on the legal theories advanced. See Adamo v. State Farm
Lloyds Co., 853 S.W.2d 673, 677 (Tex. App.)Houston [14th Dist.] 1993, writ
denied) (citing Cont’l Cas. Co. v. Hall, 761 S.W.2d 54, 56 (Tex. App.)Houston
[14th Dist.] 1988, writ denied), cert. denied, 495 U.S. 932 (1990)).
Following the dictates of the Eight Corners Rule, we examine the relevant
portions of the CNA Policy and the underlying suit. The professional services
exclusion contained in CNA’s Policy reads as follows:
The insurance provided to the additional insured does not apply to
. . . “property damage” . . . arising out of an architect’s, engineer’s,
or surveyor’s rendering of or failure to render any profession
services including:
a. The preparing, approving, or failing to prepare or approve maps,
shop drawings, opinions, reports, surveys, field orders, change
orders or drawings and specifications; and
b. Supervisory, or inspection activities performed as part of any
related architectural or engineering activities.
In the underlying suit, the Amended Complaint alleged:
After having an opportunity to review the drilling profile,
defendants signed off and approved the plans on or about December
3, 2005. The process of drilling began and the drill bore damaged
EMPCo’s pipelines.
Defendants owed a duty to use ordinary care to analyze, review,
supervise, construct, operate, and monitor the work so that
EMPCo’s pipelines would not be damaged.
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***
When the two documents are examined together, it is clear that Exxon bases
liability at least in part on conduct that does not qualify under the professional
services exclusion. Exxon alleges that “defendants . . . approved the plans,” “the
drill bore damaged EMPCo’s pipelines,” and “[d]efendants owed a duty to use
ordinary care to analyze, review, supervise, construct, operate, and monitor the
work.” Although the allegations include conduct that arguably qualifies as
professional service under the terms of the exclusion (e.g., approval of the plans),
they also contain conduct that clearly does not fit within the exclusion (e.g.,
drilling, constructing, operating).
A liability insurer is obligated to defend a suit if the facts alleged in the
pleadings would give rise to any claim within the coverage of the policy. See
Nat’l Union Fire Ins. Co. of Pittsburgh, PA v. Merchs. Fast Motor Lines, Inc., 939
S.W.2d 139, 141 (Tex. 1997). In determining whether any of the allegations
would give rise to a claim within coverage of the policy, we read the allegations
liberally in favor of the insured, with any doubts resolved in favor of the insured.
See Guar. Nat’l Ins. Co. v. Azrock Indus., Inc., 211 F.3d 239, 243 (5th Cir. 2000).
As we noted in Primrose Operating Co. v. National American Insurance Co., “[i]f
any allegation in the complaint is even potentially covered by the policy then the
insurer has a duty to defend its insured.” 382 F.3d 546, 552 (5th Cir. 2004)
(emphases in original) (internal citations omitted). An examination of the CNA
Policy and the complaint in the underlying suit makes clear that Exxon alleged
both professional and non-professional negligence. Accordingly, CNA had a duty
to defend the underlying suit in this case under the Eight Corners Rule. See
Utica Nat’l Ins. Co. v. Am. Indem. Co., 141 S.W.3d 198, 200 (Tex. 2004).
CNA argues that the instant case is distinguishable from Utica National
because the clause at issue here excludes coverage for property damage arising
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out of the rendering of or failure to render professional services whereas the
clause in Utica National only excluded injury due to the rendering of or failure
to render professional services. See Utica Nat’l Ins. Co., 141 S.W.3d at 201. The
Utica National Court observed that “due to” requires a more direct type of
causation than “arising out of,” which the Court defined as requiring only a
simple causal connection or relation, i.e., but for causation, and not direct or
proximate causation. Id. at 203 (citing Mid-Century Ins. Co. v. Lindsey, 997
S.W.2d 153, 156 (Tex. 1999)). We have likewise held “the words ‘arising out of,’
when used within an insurance policy, are ‘broad, general, and comprehensive
terms effecting broad coverage.’” Am. States Ins. Co. v. Bailey, 133 F.3d 363, 370
(5th Cir. 1998) (citing Red Ball Motor Freight, Inc. v. Employers Mut. Liab. Ins.
Co., 189 F.2d 374, 378 (5th Cir. 1951)). Relying on this broader significance of
“arising out of,” CNA maintains that it only needs to show that the underlying
suit alleges liability based on a professional service and that such conduct is a
but for cause of the injury for the exclusion to apply.
Even assuming that CNA were correct as to the requisite showing, Exxon’s
complaint alleges damages that could have occurred even if there was no error
in the approval of the plans. For example, even if the survey and its approval
were perfect in every respect and the subcontractors simply failed to aim the
directional drill correctly, Exxon could still recover. Put differently, conduct that
clearly falls outside of the professional services exclusion provides an
independent but for cause of the injury.
We have often dealt with cases in which plaintiffs alleged covered and
excluded causes for their injuries. Texas courts and this court applying Texas
law have recognized a distinction in these cases between cases involving
“separate and independent” causation and those involving “concurrent”
causation. See Utica Nat’l Ins. Co., 141 S.W.3d at 204. In cases involving
separate and independent causation, the covered event and the excluded event
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each independently cause the plaintiff’s injury, and the insurer must provide
coverage despite the exclusion. See Guar. Nat’l Ins. Co. v. N. River Ins. Co., 909
F.2d 133, 137 (5th Cir. 1990) (holding that a hospital’s failure to secure windows
and to properly supervise a psychiatric patient both proximately caused her
suicide and thus a professional exclusion did not apply); Warrilow v. Norrell, 791
S.W.2d 515, 526 (Tex. App.)Corpus Christi 1989, writ denied); Cagle v.
Commercial Standard Ins. Co., 427 S.W.2d 939, 943)44 (Tex. App.)Austin 1968,
no writ). In cases involving concurrent causation, the excluded and covered
events combine to cause the plaintiff’s injuries. See Utica Nat’l Ins. Co., 141
S.W.3d at 204. Because the two causes cannot be separated, the exclusion is
triggered. See Travelers Indem. Co. v. Citgo Petroleum Corp., 166 F.3d 761,
771)72 (5th Cir. 1999) (holding that, under Texas law, liability for failing to
follow separate corporate safety standards was necessarily derivative of excluded
negligent driving claim); Burlington Ins. Co. v. Mexican Am. Unity Council, 905
S.W.2d 359, 363 (Tex. App.)San Antonio 1995, no writ) (holding that an
exclusion applied because the negligent supervision of a youth home resident
and the assault and battery which caused her injuries were not “separate and
independent”); Thornhill v. Houston Gen. Lloyds, 802 S.W.2d 127, 130 (Tex.
App.)Fort Worth 1991, no writ) (holding that a sale-to-minors exclusion in a
general liability policy applied to claims that a store was negligent in selling
alcohol to minors and training its employee on permissible purchases because
the claims were “related and interdependent”).
Because the underlying complaint alleged conduct that could have caused
the injury independent of any conduct that would qualify as a professional
service, we hold that this case is controlled by the line of cases involving
“separate and independent” causation. As discussed, the complaint would give
rise to liability even if Exxon’s pipeline was damaged by negligent drilling that
had nothing to do with the preparation or approval of the plans. When conduct
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to which the professional services exclusion does not apply provides a separate
but for cause of the injury, the insurer must provide coverage. See Utica Nat’l
Ins. Co., 141 S.W.3d at 204. Accordingly, we hold that the district court correctly
determined that the professional services exclusion does not provide a basis for
CNA to deny coverage.
B
Willbros contends that the district court erred in finding that no conflict
exists between the two “Other Insurance” provisions and that CNA’s liability for
defense does not begin until the Lexington Policy is exhausted. According to
Willbros, the policies are in conflict because, read together, it is impossible to
determine which coverage applies. Willbros argues that in these circumstances,
Hardware Dealers2 applies and liability must be pro rata.
It is undisputed that Willbros is an insured under two liability policies, the
Lexington Policy and the CNA Policy. The policies contain differing “Other
Insurance” clauses: Lexington’s clause provides pro rata coverage;3 CNA’s clause
2
Hardware Dealers Mutual Fire Ins. Co. v. Farmers Ins. Exch., 444 S.W.2d 583 (Tex.
1969).
3
The Lexington Policy contains the following “Other Insurance” provision:
a. Primary Insurance
This insurance is primary except when b. Excess Insurance, below, applies. If
this insurance is primary, our obligations are not affected unless any of the
other insurance is also primary. Then, we will share with all that other
insurance by the method described in c. Method of Sharing, below [indicating
pro rata].
b. Excess Insurance
This insurance is excess over:
Any other primary insurance available to you covering liability for damages
arising out of the premises or operations for which you have been added as an
additional insured by attachment of an endorsement.
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provides excess coverage.4 Because both of the policies apply, the companies’
respective liability depends on the interrelation of the “Other Insurance”
provisions.
Although the district court’s interpretation))that the policies are not in
conflict because Lexington’s “Other Insurance” clause, by its own terms, is
primary, while CNA’s “Other Insurance” clause, by its own terms, renders its
policy excess))is reasonable, it is contrary to controlling Fifth Circuit
precedent.5 In Royal Insurance Co. of America v. Hartford Underwriters
Insurance Co., we held that virtually identical “other insurance” clauses were in
“conflict” notwithstanding the fact that, as in this case, a plain language reading
of the policies would not have left the insured without coverage. 391 F.3d 639
(5th Cir. 2004). Because we do not find the instant case distinguishable from
Royal Insurance, we hold that the Lexington and CNA “Other Insurance”
provisions conflict and that liability for defense of the underlying suit should be
apportioned on a pro rata basis.
4
The CNA Policy contains the following “Other Insurance” provision:
This insurance is excess over any other insurance naming the additional
insured as an insured whether primary, excess, contingent or on any other basis
unless a written contract or written agreement specifically requires that this
insurance be either primary or primary and noncontributing.
In its brief, Willbros relies on an “Other Insurance” clause from the main policy form in CNA’s
Policy. But, for purposes of this appeal, CNA’s main policy is modified by an endorsement that
applies when coverage involves an additional insured. Endorsements to a policy generally
supersede and control over conflicting printed terms within the main policy. See Mesa
Operating Co. v. Cal. Union Ins. Co., 986 S.W.2d 749, 754 (Tex. App.) Dallas 1999, pet.
denied). Hence, for purposes of an analysis of “other insurance” provisions applicable to an
additional insured, the above-quoted “Other Insurance” provision applies and not the provision
discussed in Willbros’s brief.
5
The court commends counsel for CNA for his forthrightness in directing the court’s
attention to controlling precedent contrary to his position.
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C
Willbros raises two further interrelated challenges to the district court’s
judgment. First, Willbros contends that the district court erred in finding the
indemnity issues to be non-justiciable. Second, Willbros contends that the
district court erred in failing to address the effect of the “Insured Contract”
provision of the CNA Policy. Willbros argues that once the district court
concluded that Willbros was an “Additional Insured,” then the district court
necessarily should have found that the “Insured Contract” provision applied.
According to Willbros, the district court should have determined that the
“Insured Contract” provision entitled it to 100 percent indemnity from CNA.
In its memorandum opinion, the district court correctly observed that the
duty to defend and the duty to indemnify are separate and distinct obligations.
See Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d 819, 821-22 (Tex. 1997).
The latter generally arises only after an insured has been adjudicated, whether
by judgment or settlement, to be legally responsible for damages that are
covered by the policy. Collier v. Allstate County Mut. Ins. Co., 64 S.W.3d 54, 62
(Tex. App.)Houston [1st Dist.] 2001, no pet.).
While this rule that indemnity issues must await resolution of the
underlying suit is not per se,6 it is applicable to the instant case. As we noted in
discussing the professional services exclusion, the underlying suit alleges
varying grounds for liability. The defendants in the underlying suit might be
liable for mistakes in drilling, for negligently approving the plans, or for nothing
at all. In such a case, facts necessary to determine whether a duty to indemnify
arises cannot be known until after liability is determined. Thus, because
different theories of liability are alleged in the underlying suit that might or
might not exclude coverage, the district court was correct to hold the indemnity
6
See Farmers Texas County Mut. Ins. Co. v. Griffin, 955 S.W.2d 81, 82 (Tex. 1997).
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issues non-justiciable. See Farmers Texas County Mut. Ins. Co., 955 S.W.2d at
84 (finding it “necessary to defer resolution of indemnity issues until the liability
litigation is resolved [when] . . . coverage may turn on facts actually proven in
the underlying lawsuit”).
Having determined that the duty to indemnify was not ripe when the
district court issued its summary judgment, we likewise find no error in its
failure to address Willbros’s argument that it is entitled to 100 percent
indemnity under the “Insured Contract” provision of the CNA Policy. As this
determination also turns on facts to be resolved in the underlying lawsuit, it also
was not ripe for consideration. See Id.
Although the underlying suit was still pending when the district court
issued its summary judgment order, it settled while the instant appeal was
pending. In light of this development and the fact that other parts of our
decision necessitate remand, we also remand the indemnity issues to the district
court.
III
For the aforementioned reasons, we AFFIRM the district court’s
determination that the professional services exclusion does not apply and that
the indemnity issues were non-justiciable, REVERSE the district court’s
determination that the “Other Insurance” provisions are not in conflict, and
REMAND for the district court to apportion liability for defense on a pro rata
basis and to consider the now-ripe indemnity issues.
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EMILIO M. GARZA, Circuit Judge, with whom JENNIFER WALKER ELROD,
Circuit Judge, joins, specially concurring:
I fully agree with the panel opinion. Although I am inclined to disagree
with Royal Insurance Co. of America v. Hartford Underwriters Insurance Co.,
391 F.3d 639 (5th Cir. 2004), we are bound by the decision because it is the
settled law of this circuit and one panel of this court cannot overrule the decision
of another panel. See FDIC v. Dawson, 4 F.3d 1303, 1307 (5th Cir. 1993);
Burlington N. R.R. v. Bhd. of Maint. of Way Employees, 961 F.2d 86, 89 (5th Cir.
1992); Pruitt v. Levi Strauss & Co., 932 F.2d 458, 465 (5th Cir. 1991).
Nonetheless, I encourage the court to revisit en banc our interpretation of
what constitutes conflicting “other insurance” provisions under Hardware
Dealers Mutual Fire Insurance Co. v. Farmers Insurance Exchange, 444 S.W.2d
583 (1969). Texas Supreme Court cases instruct that, when possible, we should
focus on the plain language of the insurance policy. See Nat’l Union Fire Ins. Co.
of Pittsburgh, PA v. Crocker, 246 S.W.3d 603, 606 (Tex. 2008) (noting that
insurance policies are construed according to the same rules of construction that
apply to contracts generally); Utica Nat’l Ins. Co., 141 S.W.3d at 206 (citing
numerous cases that reiterate that insurance policies must be interpreted and
construed like other contracts); Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132,
133 (Tex. 1994) (“When construing a contract, the court’s primary concern is to
give effect to the written expression of the parties’ intent.”); Puckett v. U.S. Fire
Ins. Co., 678 S.W.2d 936, 938 (Tex. 1984) (“When there is no ambiguity, it is the
court’s duty to give the words used their plain meaning.”).
Indeed Hardware Dealers itself teaches that we should not create a
“conflict” when the plain language is not reasonably subject to a construction
that produces conflict. In Hardware Dealers, the Texas Supreme Court
interpreted conflicting “other insurance” provisions in which the conflict had the
potential to leave the insured without coverage. One policy included a provision
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that excluded from coverage anyone who was covered by other insurance. 444
S.W.2d at 585. The other policy included an other insurance provision that
converted its coverage into excess insurance if other insurance coverage existed.
Id. at 584. In rejecting a construction that left the insured with no coverage, the
court announced the following rule of interpretation:
When, from the point of view of the insured, she has coverage from
either one of two policies but for the other, and each contains a
provision which is reasonably subject to a construction that it
conflicts with a provision in the other concurrent insurance, there
is a conflict in the provisions.
Id. at 589. After finding that the two policies were reasonably subject to a
construction that they conflicted (an escape clause versus an excess clause), the
court concluded that in such circumstances, Texas courts should ignore the
conflicting provisions, and instead apportion liability pro rata. Id. at 590.
In St. Paul Mercury Insurance Co. v. Lexington Insurance Co., 78 F.3d 202,
210 (5th Cir. 1996), we expressly rejected an argument that distinguished
Hardware Dealers when an escape clause and a pro rata clause conflicted. The
escape clause read, “[W]here the Assured is, irrespective of this insurance,
covered or protected against any loss or claim which would otherwise have been
paid by the Assurer, under this policy, there shall be no contribution by the
Assurer on the basis of double insurance or otherwise.” Id. at 206. The pro rata
clause provided that the insurer “will not pay more than [its] share of damages
and costs covered by this insurance and other insurance or self-insurance.
Subject to any limits of liability that apply, all shares will be equal until the loss
is paid.” Id. at 207 (alteration in original). Although the insured arguably would
have had coverage under the pro rata clause regardless of the conflict, the
provisions were nonetheless reasonably subject to a construction that they
conflicted because the pro rata clause could be read to cap the insurer’s liability
at its “share” while the escape clause precluded any coverage under the other
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policy. Put differently, a reasonable reading of the two clauses left the insured
with less coverage than he would have had but for the existence of the other
policy. Thus, after properly applying Hardware Dealers, we determined that the
policies conflicted and liability must be pro rata. Id. at 210.
Royal Insurance, however, extended the Hardware Dealers rule to
situations in which the plain language of the contracts was not subject to a
reasonable construction that the other insurance provisions were in conflict. 391
F.3d 639 (5th Cir. 2004). One provision stated, “This insurance is primary
except as described in Paragraph b. below. Our obligations are not affected
unless any of the other insurances is also primary. Then we will share with all
that other insurance by the method described in Paragraph c. below [pro rata].”
Id. at 640)41 n.1. The other policy provided, “This insurance is excess over any
other insurance other than insurance specifically arranged by you on an
umbrella or similar basis to apply excess of this coverage part.” Id. at 641 n.2.
Even though, as in this case, the plain language of the policies was not
reasonably subject to a construction that the policies conflicted, the court found
that the district court read Hardware Dealers too narrowly in determining that
no conflict existed. The court found that, from the perspective of the insured,
either policy would provide full coverage in the absence of the other policy and
that, “from this perspective,” the policies were in conflict. Royal Ins., 391 F.3d
at 644 (emphasis added).
This approach incorrectly treated step one of the Hardware Dealers test
as determinative of step two. Hardware Dealers, however, explains that the two
steps are separate inquires: The first step instructs us to look at the coverage
provided if each policy were the only policy))“When, from the point of view of
the insured, she has coverage from either one of two policies but for the other.”
444 S.W. at 589 (emphases added). The second step requires us to evaluate the
impact, if any, that the two clauses, when read together, would have on the
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coverage of the insured))“each contains a provision which is reasonably subject
to a construction that it conflicts with a provision in the other concurrent
insurance.” Id. (emphasis added). To read step one as determinative of step two
ignores the “and” in the Hardware Dealers test, thus rendering the second step
redundant. See id. This was the error in Royal Insurance))the court did not
evaluate whether the policies were reasonably subject to a construction that they
conflicted.
In my view, the plain language of the “Other Insurance” provisions at
issue in this case, just as the language at issue in Royal Insurance, is not
reasonably subject to a construction that produces a conflict. The Lexington
Policy’s “Other Insurance” provision provides that it is primary unless Willbros
has other primary insurance available to it, in which case it is only excess
insurance. Conversely, the CNA Policy provides that it is excess unless a
written agreement specifically requires that it be primary. In this case, there
is no such written agreement. Thus, under the plain and unambiguous language
of the policies, the Lexington Policy is primary and the CNA Policy is excess.
When, as here, the language is not reasonably subject to a construction that the
provisions conflict, Hardware Dealers should not apply. Because the plain
language of the other insurance provisions provides an unambiguous result that
does not leave the insured without coverage, I see no reason to artificially create
a conflict in order to impose pro rata liability.
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