Case: 22-51114 Document: 00517005663 Page: 1 Date Filed: 12/18/2023
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
____________ FILED
December 18, 2023
No. 22-51114
Lyle W. Cayce
____________ Clerk
Colony Insurance Company,
PlaintiffAppellant,
versus
First Mercury Insurance Company,
DefendantAppellee.
______________________________
Appeal from the United States District Court
for the Western District of Texas
USDC No. 1:20-CV-474
______________________________
Before Higginbotham, Higginson, and Duncan, Circuit Judges.
Per Curiam:
First Mercury Insurance Co. and Colony Insurance Co. contributed
to a settlement agreement related to an underlying negligence case against
DL Phillips Construction, Inc. d/b/a Ja-Mar Roofing (DL Phillips), which
both companies insured consecutively under commercial general liability in-
surance policies. After the settlement, Colony sued First Mercury, arguing
First Mercury needed to reimburse Colony, under either a contribution or
subrogation theory, for the full amount of its settlement contribution because
First Mercurys policies covered all damages at issue. After the parties sub-
mitted cross-motions for summary judgment, the district court adopted the
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No. 22-51114
magistrate judges Report and Recommendation, granted summary judg-
ment in favor of First Mercury, and denied summary judgment for Colony.
Colony appealed, arguing the district court erred by: (1) holding that
First Mercury was responsible only for those property damages that occurred
during the policy period, and in doing so, rejecting the all-sums approach
to damages allocation; and, alternatively, by (2) finding no genuine dispute
of material fact regarding the allocation of covered and non-covered damages.
We AFFIRM.
I.
A.
This case began when Palmer Cravens, LLC hired DL Phillips to
replace the roof of an outpatient clinic in McAllen, Texas in November 2012.
DL Phillips completed the work on February 1, 2013, but the roof began
leaking by March 2013. The leaks continued through March, April, May,
June, and September 2013, and Palmer reported them to DL Phillips and
eventually retained an inspector, Rick Guerra-Prats, to assess the property.
Guerra-Prats retained a consultant who inspected the roof and, on
February 17, 2014, issued a report noting that there were serious roof defects
causing the leaks. Shortly thereafter, Guerra-Prats obtained several estimates
for re-roofing and additional repairs.
On June 16, 2014, Palmer sued DL Phillips, asserting claims of fraud,
negligent misrepresentation, violations of the Texas Insurance Code, breach
of fiduciary duty, breach of contract, breach of express warranty, breach of
implied warranty, and negligence. While the lawsuit was pending, a strong
rainstorm occurred in September 2014 and caused substantial water intrusion
damage to the interior of the property. Additional water damage occurred in
June 2018.
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From 2012 to 2016, DL Phillips was insured by First Mercury and
Colony. First Mercury issued two consecutive liability policies, each with a
$1 million per occurrence limit of liability, to DL Phillips. The first was
effective from April 21, 2012, to April 21, 2013, and the second was effective
from April 21, 2013, to April 21, 2014. Then, Colonys coverage took over,
also with a $1 million per occurrence limit. Colonys first policy provided
coverage from April 21, 2014 to April 21, 2015, and its second policy was
effective from April 21, 2015, to April 21, 2016.
The jury found in favor of Palmer and awarded him $600,000 in
damages, but after Palmers motion notwithstanding the verdict, the district
court entered a judgment on December 11, 2018 against DL Phillips in excess
of $3.7 million, which included $2.4 million for replacement of the roof and
lost rental income and $590,000 in prejudgment interest. Colony and First
Mercury initially defended DL Phillips under a reservation of rights, but
Colony later sued DL Phillips and sought a declaration that its policy did not
cover Palmers claims.
Between March and April 2019, Palmer, DL Phillips, First Mercury,
and Colony reached a confidential settlement agreement that addressed both
Palmers and Colonys lawsuits. Both Colony and First Mercury contributed
to the settlement, though First Mercury contributed slightly more than
Colony, and the agreement expressly explained that some sums were
indemnity payments while others were supplementary payments. As
part of the settlement, Colony and First Mercury released all claims against
each other except for the following exclusion:
Colony and First Mercury reserve the right to pursue further
claims as to the respective rights and obligations between
Colony and First Mercury with regard to any reallocation
and/or reimbursement for all amounts paid as indemnity and
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supplementary payments, damages, costs, fees, or settlements
paid to resolve the Underlying Lawsuit.
B.
After the settlement, Colony filed the present lawsuit against First
Mercury seeking: (1) damages for First Mercurys alleged breach of the First
Mercury policies; (2) a judicial declaration that First Mercury had a duty to
indemnify DL Phillips for the full amount of the settlement and that First
Mercury breached its policies by not doing so; and (3) Colonys attorneys
fees, pursuant to Section 38.001 of the Texas Civil Practice and Remedies
Code, as a contractual subrogee of DL Phillips.1 On cross-motions for
summary judgment, the district court adopted the magistrate judges Report
and Recommendation, granted summary judgment in favor of First Mercury,
and denied summary judgment for Colony.
In doing so, the district court found that Colony failed to raise a
genuine dispute of material fact as to the scope of First Mercurys
responsibility. Specifically, although both parties agreed that all damage was
caused by a single occurrence (the defective roof installation), the court
found that Colony has not shown or raised a material fact issue that Fist
Mercury is responsible for property damage that occurred after [its policies]
expired. It also found that Colony failed to raise a material fact issue as to
whether monies [Colony] contributed to the settlement were for damages
or supplemental payments covered under First Mercurys policies because
Colony did not make any effort to valuate the property damage that
occurred before the First Mercury policy expired. Instead, it contended that
allocation was unnecessary because First Mercurys policies cover[ed] all
_____________________
1
The district court vacated its judgment in Palmers case on April 1, 2019 and
dismissed it with prejudice on August 14, 2019.
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of the property damages.2 The court did not reach First Mercurys other
arguments that Colony could not assert contribution or subrogation claims
because Colony [did] not raise[] a fact issue that defeats First Mercurys
summary judgment.
On appeal, Colony argues the district court erred by: (1) holding First
Mercury responsible only for property damage that took place during its
policy periods, and in doing so, rejecting the all-sums approach to
damages allocation; and, alternatively, by (2) finding no genuine dispute of
material fact regarding allocation of covered and non-covered damages.
Colony asks this Court to reverse the district courts grant of summary
judgment and contends it is entitled to reimbursement from First Mercury
for the entirety of Colonys settlement contribution because First Mercury
was completely responsible for all the property damage at issue.
In response, First Mercury argues: (1) the district court properly
applied Texas insurance law and interpreted the relevant policies when it
concluded that First Mercurys policies do not cover all of the damages at
issue in this case; and (2) Colony failed to create a genuine dispute of material
fact regarding damages allocation and cannot recover payment on a
contribution or subrogation theory. First Mercury posits that because
portions of the settled loss are not covered by its policies, Colony needed to
show that it paid for some damages covered by First Mercurys policies
and to do so, it had to present sufficient evidence for the district court to
allocate the damages between the companies. Because Colony did not meet
this burden, First Mercury argues it is not entitled to reimbursement.
_____________________
2
Of note, the magistrate judges Report and Recommendation said that evidence
of the allocation may exist somewhere in the record from the Underlying Lawsuit, but it
is not the undersigneds responsibility to search it out.
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C.
Several provisions of First Mercurys policy are at issue. To start, the
policy agrees to pay those sums that the insured becomes legally obligated
to pay as damages because of bodily injury or property damage to which
this insurance applies. Property damage is defined as:
Physical injury to tangible property, including all resulting loss
of use of that property. All such loss of use shall be deemed to
occur at the time of the physical injury that caused it; or [l]oss
of use of tangible property that is not physically injured. All
such loss of use shall be deemed to occur at the time of the
occurrence that caused it.
The policy specifies that property damage is covered only if it is
caused by an occurrence that takes place in the coverage territory and if
the property damage occurs during the policy period. The policy defines
occurrence as an accident, including continuous or repeated exposure to
substantially the same general harmful conditions.
Although the policys boilerplate language covered any
continuation, change or resumption of property damage after the end of the
policy period (i.e., paragraph c), that language was expressly excluded
from the final version of the policy by an endorsement. This endorsement,
attached and integrated with the final version of the insurance policy, was
entitled CONTINUOUS OR PROGRESSIVE INJURY AND DAMAGE
EXCLUSION, explicitly deleted paragraph c (Paragraph b (3), c and d are
deleted in their entirety), and stated that the endorsement forms a part of
the Policy to which attached. As such, for all intents and purposes,
paragraph cs language was stricken from the policy.3
_____________________
3
First Mercury also contends that the mold exclusion provision additionally
limits its responsibility. The mold exclusion denies coverage for property damage
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II.
This Court review[s] grants of summary judgment de novo, applying
the same standard as the district court.4 The court shall grant summary
judgment if the movant shows that there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter of law.5
When parties file cross-motions for summary judgment, we review each
partys motion independently, viewing the evidence and inferences in the
light most favorable to the nonmoving party.6
III.
First, we address Colonys argument that First Mercurys insurance
policies covered all damages resulting from the roof defect (those reported in
2013, 2014, and 2018) and addressed by the settlement. Colony contends that
Texas applies an all-sums approach to damage allocation, such that once
an insurers coverage is triggered by an occurrence, the insurer is liable
for all resulting damage no matter when it arises. But this reasoning conflicts
with binding precedent from both the Texas Supreme Court and this Court.
_____________________
which would not have occurred, in whole or in part, but for the actual, alleged or
threatened . . . existence of, or presence of, any fungi or bacteria . . . regardless of whether
any other cause, event, material or product contributed to the damage. The magistrate
judges Report and Recommendation did not address the mold exclusion, but it was not
necessary to the outcome, and this Court need not address it here. Because First Mercurys
policies did not cover property damage arising after the policies expired, see infra Section
III.A, Colonys burden to allocate damages was triggered. Because Colony failed to meet
this burden, the precise amount of damages excluded by the mold exclusion is irrelevant.
4
In re La. Crawfish Producers, 852 F.3d 456, 462 (5th Cir. 2017) (citing Templet v.
Hydrochem Inc., 367 F.3d 473, 477 (5th Cir. 2004)).
5
FED. R. CIV. P. 56(a).
6
Miller v. Reliance Standard Life Ins. Co., 999 F.3d 280, 283 (5th Cir. 2021) (citing
Green v. Life Ins. Co. of N. Am., 754 F.3d 324, 329 (5th Cir. 2014)).
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A.
Texas substantive law governs the insurance contracts at issue in this
diversity action.7 Under Texas law, courts construe insurance policies
according to the same rules of construction that apply to contracts generally
and aim to give effect to parties intent.8 While unambiguous insurance
contracts are enforced as written, courts will resolve any ambiguities in
favor of coverage.9 No one phrase, sentence, or section [of the policy]
should be isolated from its setting and considered apart from the other
provisions.10 Courts must also give the policys words their plain meaning,
without inserting additional provisions into the contract.11 When deciding
distinct but related questions about an insurers duty to defend, Texas courts
have declined to issue one universal rule and instead have made clear that
the text of the policy at issue is controlling: the Texas Supreme Court
considers policy language before deciding which rule to apply, and different
courts in Texas have applied different rules depending on the text of the
relevant policy.12 As the Texas Supreme Court described, varying
approaches reflect perceived differences in the policy language under
review as well as different factual circumstances.13
_____________________
7
VRV Dev. L.P. v. Mid-Continent Cas. Co., 630 F.3d 451, 456 (5th Cir. 2011) (citing
Erie R.R. v. Tompkins, 304 U.S. 64, 78 (1938); Bexar Cnty. Hosp. Dist. v. Factory Mut. Ins.
Co., 475 F.3d 274, 276 (5th Cir. 2007)).
8
Dons Bldg. Supply, Inc. v. OneBeacon Ins. Co., 267 S.W.3d 20, 23 (Tex. 2008)
(citations omitted).
9
Id.
10
Id.
11
Id.
12
Id. at 2530.
13
Id. at 25 (citations omitted).
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Typically, an insurers duty to indemnify an insured cannot be
established until after the completion of litigation, when liability is
determined.14 This is because, unlike the duty to defend, which turns on the
pleadings, the duty to indemnify is triggered by the actual facts establishing
liability in the underlying suit, and whether any damages caused by the
insured and later proven at trial are covered by the terms of the policy.15
Initially, the insured has the burden of establishing coverage under the
terms of the policy. . . . If the insured proves coverage, then to avoid liability
the insurer must prove the loss is within an exclusion.16 If the insurer does
so, then the burden shifts back to the insured to show that an exception to
the exclusion brings the claim back within coverage.17
Several cases in this Circuit and in the Texas Supreme Court squarely
address this issue and, when read together, determine the scope of First
Mercurys coverage. First, the Texas Supreme Court answered two certified
questions to determine when coverage is triggered under occurrence-based
liability policies in Dons Building Supply, Inc. v. OneBeacon Insurance Co.18
There, the court evaluated a policy similar to the one at issue here and held
that property damage under this policy occurred when actual physical
damage to the property occurred because the policy defined property
damage as [p]hysical injury to tangible property while explicitly stating
that coverage is available if and only if property damage occurs during the
_____________________
14
Colony Ins. Co. v. Peachtree Constr., Ltd., 647 F.3d 248, 253 (5th Cir. 2011).
15
Id.
16
Gilbert Tex. Constr., L.P. v. Underwriters at Lloyds London, 327 S.W.3d 118, 124
(Tex. 2010) (citations omitted).
17
Id. (citations omitted).
18
Dons Bldg. Supply, Inc., 267 S.W.3d at 2330, 3032.
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policy period.19 Thus, the court held that property damage occurred
when a home that is the subject of the underlying suit suffered wood rot or
other physical damage, not when the damage was discovered (nor, by
implication, when the initial installation of defective products occurred).20
Next, this Court in Wilshire Insurance Co. v. RJT Construction, LLC
evaluated when insurance coverage was triggered under a policy that
expressly covered only property damage that occurs during the policy
period [of June 2004 through June 2006].21 Citing Dons Building Supply,
this Court held that, under Texas law, what matters is when the actual
physical damage at issue arose, rather than when a but-for cause of the
damage occurred.22 In Wilshire, a homes foundation was repaired in 1999,
but cracks in the walls and ceilings appeared in 2005 allegedly caused by
the faulty foundation.23 This Court held that the occurrence of the cracks
triggered coverage under the policy period even though their underlying
cause occurred years prior:
The cracks themselves are physical damage allegedly caused by
the faulty foundation. This is not a case where latent internal
rot long lies undiscovered before external signs warn of the
festering damage. The cracks are not merely a warning of prior
undiscovered damage; they are the damage itself. It is of no
moment that the faulty foundation work occurred in 1999, or
_____________________
19
Id. at 24 (internal quotations omitted).
20
Id. at 22, 24.
21
See generally Wilshire Ins. Co. v. RJT Constr., LLC, 581 F.3d 222 (5th Cir. 2009).
22
Id. at 225.
23
Id.
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that the damage was discovered in 2005; it matters only that
damage was alleged to have occurred in 2005.24
Two years later, this Court reaffirmed Wilshire in VRV Development
L.P. v. Mid-Continent Casualty Co.25 In VRV Development L.P., the insured
argued that the court should consider damage arising after the insurance
policies expired to have occurred at the same time as the but-for cause of the
damage.26 The Court rejected this bootstrapping argument and held that
the alleged damage occurred only when the [defective] retaining walls
collapsed, which took place after the insurance policies expired, and not
when the walls were first installed or when cracks first appeared, which
occurred during the policy window.27 Notably, the Court made this holding
despite policy language that property damage that occurs during the policy
period includes any continuation, change or resumption of that . . . property
damage after the end of the policy period.28 It explained:
What Wilshire recognized is that property damage does not
necessarily occur at the first link in the causal chain of
events giving rise to that property damage. Nearly all property
damage will be traceable back to earlier events, but this is not
the nature of our inquiry. As the Texas Supreme Court has
instructed, we must focus on the time of the actual physical
damage to the property, and not the time of the negligent
conduct or the process . . . that later results in the damage.
Dons Bldg. Supply, Inc. v. OneBeacon Ins. Co., 267 S.W.3d 20,
24, 2930 (Tex. 2008). It may be difficult at times to determine
_____________________
24
Id. (citations omitted).
25
630 F.3d 451, 45758 (5th Cir. 2011).
26
Id.
27
Id.
28
Id. at 458. This language was in the boilerplate version of First Mercurys policy
but was excluded through an endorsement.
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precisely when actual physical damage occurs, but we must
draw a line somewhere. Id. at 29 (Pinpointing the moment of
injury retrospectively is sometimes difficult, but we cannot
exalt ease of proof or administrative convenience over
faithfulness to the policy language.).
Here, the homeowners backyards and the Citys easement
were actually, physically damaged not by the negligent design
and construction of the retaining walls, nor by a continuous
exposure to the walls between May 2004 and May 2006, but
rather by the collapse and failure of the walls in January
and March 2007. In other words, this is not a case involving
festering, undiscovered damage to covered property during the
policy period. . . . This is a case in which potentially covered
property damage occurred only after the policy period.29
Finally, the Texas Supreme Courts analysis in Lennar Corp. v. Markel
American Insurance Co. is instructive.30 Like the VRV Development L.P.
policy, the policy at issue in Lennar broadly defined property damage
(covering it from a continuous exposure to the same harmful conditions);
but the Lennar court reached the opposite conclusion.31 That is, the Texas
Supreme Court found the insurance company in Lennar liable for the total
_____________________
29
Id. (citations omitted).
30
Lennar Corp. v. Markel Am. Ins. Co., 413 S.W.3d 750 (Tex. 2013).
31
VRV Dev. L.P., 630 F.3d at 458; Lennar, 413 S.W.3d at 758. The polices in Lennar
and VRV Development L.P. defined property damage to include damage caused by
continuous exposure to harmful conditions, indicating that the insurers may be
responsible for damage that occurs outside of the policy windows. First Mercury expressly
excluded this language from its definition of property damage through its endorsement.
However, First Mercurys policies utilized continuous language in their definition of
occurrence, defined as an accident, including continuous or repeated exposure to
substantially the same general harmful conditions. This language, however, does not
impact our analysis, as the parties do not dispute that the property damage stemmed from
one single occurrence. Moreover, the court in Lennar did not squarely address the policy
language at issue here.
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amount of water-related damage and resulting remediation costs for covered
homes despite the fact that some damage occurred before and after the policy
period.32 It explained that the policy is limited to property damage that
occurs during the policy period but expressly includes damage from a
continuous exposure to the same harmful conditions such that, [f]or
damage that occurs during the policy period, coverage extends to the total
amount of loss suffered as a result, not just the loss incurred during the
policy period.33
Dons Building Supply Inc., Wilshire, VRV Development L.P., and
Lennar provide the general rule that occurrence-based liability policies are
triggered when the actual physical damage at issue occurred, rather than
when a but-for cause of the damage occurred;34 however, if a policy covers
property damage that includes continuous damage and as such, indicates
an intent to cover damage occurring outside the policy period, the insurer
may also be responsible for damages occurring outside of the policys
coverage period.35
As applied and pursuant to its policy language and the endorsement,
First Mercury is responsible only for the damage that occurred during the
applicable policy periods, not all damage resulting from the initial roof defect.
Like the insurers in Dons Building Supply and Wilshire, First Mercurys
policies limited its liability to property damage that occurred during the
policy periods. And unlike the insurers in VRV Development L.P. and Lennar,
_____________________
32
Lennar, 413 S.W.3d at 758.
33
Id.
34
See Dons Bldg. Supply, Inc., 267 S.W.3d at 24; Wilshire, 581 F.3d at 225; VRV
Dev. L.P., 630 F.3d at 45758.
35
Lennar, 413 S.W.3d at 758.
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First Mercury expressly declined to extend coverage to property damage that
resulted from continuous exposure to the same harmful conditions beyond
its policy terms.36 Moreover, absent clauses to the contrary, this Circuit has
hesitated to condone bootstrapping arguments that would hold insurers
responsible for damage occurring outside of the policy periods.37 Holding
First Mercury responsible only for the property damage that arose during its
policy period, then, is consistent with Texas Supreme Court and this Courts
precedent.38
B.
Colonys arguments to the contrary are unpersuasive. Colony relies
on American Physicians Insurance Exchange v. Garcia to argue Texas applies
an all-sums approach to damage allocation, such that an insurer is
responsible for all damages that stem from an occurrence if that occurrence
_____________________
36
Compare id. at 757 (The policy obligated Markel [the insurer] to pay the total
amount of Lennars loss because of property damage that occurred during the policy
period, including continuous or repeated exposure to the same general harmful
condition.) with First Mercurys policy (explaining that property damage is covered
only if it occurs during the policy period and specifically deleting the boilerplate
paragraph that would provide coverage for any continuation, change or resumption of
property damage after the end of the policy period).
37
See Wilshire, 581 F.3d at 225 (denying a bootstrapping argument that would
hold an insurer liable for property damage occurring beyond its policy period absent express
language to the contrary). Moreover, the Court has hesitated to condone such arguments
even when the contract expressly contemplates them. See VRV Dev. L.P., 630 F.3d at 457
58 (denying a bootstrapping argument and reaffirming Wilshire despite contractual
language providing coverage for any continuation, change or resumption of
that . . . property damage after the end of the policy period).
38
That the parties agree the damage stemmed from one single occurrence does
not impact our analysis: Wilshire instructs that when interpreting such agreements, we
examine when the property in question suffered actual physical damage, not when a but-
for cause of property damage occurred. 581 F.3d at 225.
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transpires during the policy period.39 However, this argument misuses
Garcia. First, Garcia did not consider the question here: whether an insurer
is responsible for property damage that arose after its policies expired (here,
post-April 21, 2014 damage), or only property damage that arose during its
policy period, when the insurance contract expressly limits coverage as such.
Instead, Garcia considered whether the insurer breached its duties to defend
or settle when some of the bodily injury at issue occurred before the policies
took effect.40 Second, Garcia provides no guidance as to how this Court
should determine when property damage occurs under a given insurance
policy. Third, while it is true that Garcia cites Keene Corp. v. Insurance Co. of
North America, a case from the D.C. Circuit which adopted the all-sums
approach to allocation, the Garcia court by no means held that it would adopt
such an approach itself.41 Ultimately, contrary to Colonys argument, Garcia
simply stands for the proposition that if an occurrence triggers more than one
policy, insurers should allocate the damages among themselves, but an
insured may collect only one award.42 This holding is inapplicable here.43
_____________________
39
876 S.W.2d 842 (Tex. 1994).
40
See generally id.
41
Keene Corp. v. Insurance Co. of N. Am., 667 F.2d 1034 (D.C. Cir. 1981).
42
Garcia, 876 S.W.2d at 85355.
43
Colony cites four additional cases, but they too carry no weight. First, Colony
cites CNA Lloyds of Tex. v. St. Paul Ins. Co., 902 S.W.2d 657 (Tex. App.Austin [3rd Dist.]
1995), writ dismd by agr. (Nov. 16, 1995), as an example of when Texas courts have applied
the all-sums approach, but nowhere in that case does the court do so. Rather, the
brawling insurers stipulated that coverage was triggered under both polices; the question
before the court was how liability should be allocated among multiple insurers and focused
on interpreting other insurance clauses. Id. at 65961. The court did not hold that an
insurer is responsible for property damage that occurs outside its policy period.
Next, Colony cites Maryland Cas. Co. v. S. Texas Med. Clinics, P.A., No. 13-06-089-
CV, 2008 WL 98375 (Tex. App.Corpus Christi & Edinburg [13th Dist.] Jan. 10, 2008)
(mem. op.) and Mid-Continent Cas. Co. v. Acad. Dev., Inc., No. H-08-21, 2010 WL 3489355
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IV.
Because we find First Mercury is not responsible for damages that
arose after its policies ended, we turn to the second question: has Colony
created a genuine dispute of material fact as to whether it paid for damages
covered by First Mercurys policies, such that it could be entitled to
reimbursement under a contribution or subrogation theory? To do so, Colony
must have presented sufficient evidence before the district court to
demonstrate how the settlement contributions were allocated in order to
show a genuine possibility that it paid for damages that should have been
covered by First Mercury. It did not.
A.
Under Texas law, insurers may seek reimbursement under the
doctrines of contractual and equitable contribution or contractual and
equitable subrogation.44 Generally, equitable contribution may be available:
[I]f two or more insurers bind themselves to pay the entire loss
insured against, and one insurer pays the whole loss, the one so
paying has a right of action against his co-insurer, or co-
insurers, for a ratable proportion of the amount paid by him,
_____________________
(S.D. Tex. Aug. 24, 2010), affd, 476 F. Appx 316 (5th Cir. 2012) (per curiam)
(unpublished). But these cases are inapposite, as they both address the broader question of
whether the insurer had a duty to defend the insured.
Lastly, Mid-Continent Casualty Co. v. Castagna focused on whether it was
necessary to allocate covered property damage that spanned multiple policies issued by the
same insurance company to receive coverage; it did not speak to the questions present here.
410 S.W.3d 445, 45355 (Tex. App.Dallas [5th Dist.] 2013, pet. denied).
44
Colony fails to cite a contractual basis for a contribution or subrogation claim on
appeal, see infra note 65.
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because he has paid a debt which is equally and concurrently
due by the other insurers.45
To qualify for equitable contribution, the insurers must have: (1)
shared a common obligation or burden; and (2) the insurer seeking
contribution must have made a compulsory payment or other discharge of
more than its fair share of the common obligation or burden.46 A common
obligation arises if two insurances policies insure the same party, the same
interest, and the same risk.47 However, pro rata or other insurance
clauses (present here) may preclude direct equitable contribution claims
because if no contractual obligations exist between co-insurers to apportion
between themselves the payment on behalf of the insured . . . we are not
persuaded to create such an obligation under the common law.48
If insurers are not entitled to contribution, they may still seek
subrogation.49 A right to subrogation is often asserted by one who pays a
debt owed by another.50 Under Texas law, there are two types of
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45
Mid-Continent Ins. Co. v. Liberty Mut. Ins. Co., 236 S.W.3d 765, 772 (Tex. 2007)
(citing Traders & Gen. Ins. Co. v. Hicks Rubber Co., 169 S.W.2d 142, 148 (Tex. 1943)).
46
Mid-Continent Ins. Co., 236 S.W.3d at 772.
47
Mt. Hawley Ins. Co. v. Lexington Ins. Co., 110 F. Appx 371, 376 (5th Cir. 2004)
(per curiam) (unpublished). It is important to note that this rule does not come from the
Texas Supreme Court, and there is little precedent from the Texas Supreme Court about
whether the common obligation relates to the underlying policy, the underlying
settlement, or a contractual obligation between the insurers.
48
Mid-Continent Ins. Co., 236 S.W.3d at 773.
49
Id. at 774 ([P]ayment of the insureds entire loss by one co-insurer does not
relieve the other co-insurers contractual obligations to the insured to pay their pro rata
share of the loss. . . . The implication is that the insured would still have a right to enforce
the contractual obligation, and presumably, that the co-insurer seeking reimbursement
could be subrogated to this right.) (citations omitted).
50
Frymire Engg Co. ex rel. Liberty Mut. Ins. Co. v. Jomar Intl, Ltd., 259 S.W.3d
140, 143 (Tex. 2008) (internal citation omitted).
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subrogation: contractual and equitable.51 Contractual subrogation is created
by an agreement or contract that grants the right to pursue reimbursement
from a third party in exchange for payment of a loss.52 In contrast, equitable
subrogation does not depend on contract but arises in every instance in
which one person, not acting voluntarily, has paid a debt for which another
was primarily liable and which in equity should have been paid by the
latter.53 In either case, the insurer stands in the shoes of the insured,
obtaining only those rights held by the insured against a third party, [and]
subject to any defenses held by the third party against the insured54 and the
right to subrogation is limited by the contractual and common law duties an
insurer owes its insured.55 When a loss includes both covered and non-
covered damages (as here), the insured bears the burden of allocating the
amount owed between covered and uncovered lossesotherwise, the court
must assume that all of the settlement proceeds went first to satisfy the
covered damages.56
To prevail on its contribution or subrogation claims, Colony must
present sufficient evidence upon which a reasonable factfinder could
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51
Mid-Continent Ins. Co., 236 S.W.3d at 774.
52
Id.
53
Id. (citations omitted).
54
Id. (citations omitted).
55
Id. at 775.
56
Satterfield & Pontikes Constr., Inc. v. United States Fire Ins. Co., 898 F.3d 574, 583
(5th Cir. 2018); see also Comsys Info. Tech. Servs., Inc. v. Twin City Fire Ins. Co., 130 S.W.3d
181, 198 (Tex. App.Houston [14th Dist.] 2003, pet. denied) (citation omitted) (Because
the insured can recover only for covered events, the burden of segregating the damage
attributable solely to the covered event is a coverage issue for which the insured carries the
burden of proof. . . . Otherwise, failure to segregate covered and noncovered perils is fatal
to recovery.).
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conclude that it paid a debt owed by First Mercury.57 To do so, Colony could
present evidence upon which a fact finder could segregate covered
damages, such as internal memoranda, correspondence between the
insurer and insured, communications with the injured party, [and]
investigative reports.58 While mathematical precision is not required,
there does need to be some reasonable basis for allocation.59
B.
Colony is entitled to reimbursement from First Mercury for its
settlement contributions only if it paid more than its fair share of the costs,
meaning it paid for damages covered by First Mercurys policies. Great
American Insurance Co. v. Employers Mutual Casualty Co. provides a
framework for this Court to determine whether Colony met its burden to
create a genuine dispute of material fact regarding this allocation.
The Court in Great American found sufficient evidence that created a
reasonable basis for the jury to believe there was unfair allocation when: (1)
one insurer paid nothing; (2) the other paid the entirety of the settlement;
and (3) there was evidence that the total value of the claims against the first
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57
See Mid-Continent Ins. Co., 236 S.W.3d at 772 (The right of action is one of
contribution, the elements of which require . . . that the insurer seeking contribution has
made a compulsory payment or other discharge of more than its fair share of the common
obligation or burden.); id. at 774 (Contractual (or conventional) subrogation is created
by an agreement or contract that grants the right to pursue reimbursement from a third
party in exchange for payment of a loss.); Frymire, 259 S.W.3d at 142 ([A] party seeking
equitable subrogation must show it involuntarily paid a debt primarily owed by another in
a situation that favors equitable relief.).
58
Great Am. Ins. Co. v. Emprs. Mut. Cas. Co., 18 F.4th 486, 492 (5th Cir. 2021)
(citation omitted).
59
Id. (citation omitted).
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insurer would have exceeded the total value of the settlement.60 In other
words, the second insurer necessarily overpaid because it paid the entire
amount of the settlement even though the first insurer was responsible for
damages that eclipsed the amount of the settlement.
C.
Colony maintains that, like the insurer in Great American, it
introduced sufficient evidence that it overpaid in the settlement. As evidence
of this claim, Colony provided three estimates of the degree of roof damage
that occurred during First Mercurys policy period.61
However, contrary to Great American, this evidence does not show
that the claims against First Mercury exceeded the value of the settlement
(or that they exceeded First Mercurys portion of payment).62 The estimates
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60
Id. at 49294.
61
Colony provided three estimates indicating the cost to repair the property
damage that occurred during First Mercurys policy period. Baldwin Roofing issued two
estimates to repair the clinics roof, and Guerra Prats Construction provided a third, more
comprehensive estimate that addressed the roof damage and repairs to the HVAC system.
Based on the parties briefings and the Courts review of the estimates, this Court
understands these to be competing, not cumulative, estimates to repair the same damage.
62
The magistrate judges Report and Recommendation, adopted by the district
court, agreed:
Colony has not offered any evidence that the amount it contributed toward
indemnity was for property damage that took place before First Mercurys
policy expired. . . . In response to First Mercurys summary judgment
motion, Colony again relies on its assertion that First Mercurys policies
cover all of the property damages and therefore argues First Mercury is
responsible for Colonys contribution to the settlement. . . . Colony did
not, in the alternative, make any effort to valuate the property damage that
occurred before the First Mercury policy expired.
The Report also noted that the evidence may exist somewhere in the record from
the underlying lawsuit, but it is not the [courts] responsibility to search it out. But even
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indicated X worth of damage that occurred during First Mercurys
policies,63 but First Mercury paid more than X dollars in the settlement
more than the claims raised against it. Given that math, Colonys evidence
does not give rise to a reasonable belief of wrongful allocation.64
Because Colony did not proveor even create a genuine dispute
that it paid for damages that First Mercury should have covered, its
contribution and subrogation claims must fail.65 And given that we resolve
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after conducting a search for such evidence, this Court was unable to find enough that
would create a genuine dispute as to damages allocation.
63
Because the settlement agreement was confidential, this Court will not disclose
the exact amount of payments.
64
Alternatively, First Mercury argues Colony waived this issue because Colony
consistently argued no segregation was necessary because the loss was entirely covered by
the First Mercury policies and entirely excluded by the Colony Policy and that it only
offered the argument and evidence it presents now in its Objections to the magistrate
judges Report and Recommendation. But this argument is unpersuasive. The record is
clear that Colony has previously raised the question of allocation and presented this
evidence before the district court.
First Mercury also argues Colony did not provide testimonial evidence, as the
parties did in Great American, to support its allocation argument, and that it instead
belatedly asked the District Court to consider the entirety of the summary judgment
record, which the District Court had no obligation to undertake and which this Court also
has no obligation to undertake. This contention, too, is unpersuasive, as Colony did cite
estimates prepared by experts and testimony from experts, DL Philips employees,
contractor invoices, and photographs.
65
Neither the magistrate judge nor the district court addressed Colonys
contribution or subrogation arguments. Because we find First Mercury responsible only for
those damages that occurred during the policy period, and because First Mercurys
settlement payments exceeded Colonys evidence of damages covered by First Mercurys
policies, there is also no basis for this Court to hold that First Mercury breached its
contractual or equitable duty to reimburse Colony or DL Phillips.
In brief: first, there is no contractual basis for a contribution or subrogation claim.
The closest Colony comes to citing a contractual basis on appeal is the claim that First
Mercury expressly agreed with Colony to litigate this coverage dispute as a term of the
underlying settlement. However, this argument is misleading and does not provide a
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this case based on the absence of a genuine dispute regarding allocation, we
need not reach the parties other arguments regarding contribution and
subrogation.66
V.
The plain language of First Mercurys policies, as well as binding case
law from Texas and this Court, indicate First Mercury is liable for only a
portion of the damages at issue. This finding triggered Colonys burden to
present sufficient evidence that would create a genuine dispute of material
fact about whether there was an unfair allocation of damages. It failed to do
so. Thus, Colonys contribution and subrogation arguments fail. We
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contractual basis: the settlement only contains a reservation of rights to pursue further
claims; it does not provide a contractual right to receive reimbursement or even serve as
an express agreement to litigate.
Second, Colonys equitable contribution claim must fail because Colony failed to
prove, or create a genuine dispute, that it paid for more than its fair share of damages.
Lastly, regarding subrogation, there is no evidence First Mercury breached any equitable
or contractual duties it held to DL Phillips. If anything, First Mercury overpaid. Thus,
using the methodology outlined in Great American, Colony did not pay more than its fair
share and is not entitled to either form of relief.
66
To note these alternative arguments: First Mercury contends Colony denies
sharing a common obligation with First Mercury to fund the settlement and that they both
issued polices covering different policy periods, such that Colony cannot recover under
an equitable contribution theory (because, by implication, the parties do not insure the
same interest or the same risk). Colony, on the other hand, fails to adequately respond to
these contentions and argues (1) it expressly agreed with First Mercury to litigate the
coverage dispute in the settlement; and (2) Mid-Continent has been read narrowly by this
Court and limited to the facts of that case. While this Court need not reach these
arguments, we note that (1) as previously described, the settlement only contains a
reservation of rights to pursue further claims, not an express agreement to litigate; and
(2) while this Court has rejected a broad view of Mid-Continent, it has done so on
grounds not relevant to this case. Additionally, as explained supra note 47, Texas law about
the meaning of common obligation remains unclear.
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AFFIRM the district courts grant of summary judgment to First Mercury
and its denial of summary judgment to Colony.
23