UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
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No. 99-50467
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STATE FARM FIRE & CASUALTY INSURANCE COMPANY,
Plaintiff-Appellee
VERSUS
JACLYN GREEN KEEGAN, As Next Friend of Diana Green, a Minor; LINDA
GREEN, Administratrix of the Estate of Russell Green,
Defendants-Appellants
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Appeals from the United States District Court
For the Western District of Texas, Austin Division
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April 18, 2000
Before HIGGINBOTHAM and PARKER, Circuit Judges, and WARD,* District
Judge.
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* District Judge of the Eastern District of Texas, sitting by designation.
T. JOHN WARD, District Judge:
Jaclyn Green Keegan and Linda Green appeal the district court’s summary
judgment in favor of State Farm Fire & Casualty Insurance Company (State Farm)
finding that State Farm did not have a duty to defend or indemnify the insured under
an insurance contract. The district court also denied Jaclyn Green Keegan’s motion
for summary judgment. We reverse and render.
Background
Jaclyn Green Keegan and her daughter Diana Green lived with Jaclyn’s
parents, Russell and Linda Green. State Farm issued a standard Texas homeowners
insurance policy to Russell and Linda Green as named insureds. The policy was
effective from March 1995 through March 1996 and insured the Green’s residence
located on Granada Drive in Georgetown, Texas. In May 1995, Russell and Linda
Green separated and Russell Green moved out of the insured residence. Jaclyn
Green Keegan and Diana Green continued to live with Linda Green. On November
12, 1995, Russell Green was taking Diana Green back to her mother after a visit to
his home, when he stopped to examine an old railroad trestle. Mistakenly believing
that the trestle was out of service, he led Diana Green out onto the trestle. While
Russell Green and Diana Green were on the trestle, a train approached. Russell
Green threw Diana Green out of the path of the oncoming train. Diana Green
suffered serious injuries from the fall off the trestle and Russell Green was stuck by
the train and killed.
Jaclyn Green Keegan, as next friend of Diana Green, brought suit against the
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Union Pacific Railroad Company and the Estate of Russell Green in the 249th
District Court, Johnson County, Texas in a case styled Jaclyn Green Keegan, as
Next Friend to Diana Green, a Minor v. Missouri Pacific Railroad, d/b/a Union
Pacific Railroad, Matthew Brian Rasch and Russell Green. The petition alleged
that Russell Green was negligent in taking Diana Green onto the trestle and for
failing to safely remove her from the trestle. Linda Green answered the suit in her
capacity as Administratrix of the Estate of Russell Green and asked State Farm to
defend her and to indemnify her for any liability on the part of Russell Green. State
Farm undertook Linda Green’s defense pursuant to a reservation of rights and
instituted a declaratory judgment action in federal court, seeking a declaration that
because Diana Green is an “insured” under the terms of the policy, the “household
exclusion” negates any duty to defend or indemnify. The district court ruled in favor
of State Farm and this appeal followed. We have jurisdiction pursuant to 28 U.S.C.
§ 1291.
Standard of Review
We review a district court’s award of summary judgment under the same
standards that the district court applied to determine whether summary judgment
was appropriate. Herrera v. Millsap, 862 F.2d 1157, 1159 (5th Cir. 1989).
Summary judgment is appropriate if the record discloses “that there is no genuine
issue as to any material fact and that the moving party is entitled to a judgment as a
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matter of law.” Fed.R.Civ.P. 56(c). Therefore, the summary judgment will be
affirmed only if we are “convinced after an independent review of the record, that
‘there is no genuine issue as to any material fact’ and that ‘the movant is entitled to
judgment as a matter of law.’” Id.
Discussion
A. The Policy
The policy at issue provides
If a claim is made or suit is brought against an insured for damages because
of bodily injury . . . caused by an occurrence to which this coverage applies,
we [State Farm] will:
1. pay up to our limit of liability for the damages for which the insured is
legally liable.
2. provide a defense at our expense by counsel of our choice . . .
The policy also states
In this policy, “you” and “your” refer to the “named insured” shown on the
declarations page and the spouse if a resident of the same household.
* * * *
“Insured” means you and residents of your household who are:
a. your relatives; or
b. other persons under the age of 21 and in the care of any person named
above.
The following language sets forth what is commonly known as the “household
exclusion”
Coverage C (Personal Liability) does not apply to:
e. bodily injury to you or an insured within the meaning of part a. or
part b. of insured as defined.
Additionally, the policy contains a “severability clause” which provides that “[t]his
insurance applies separately to each insured.”
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B. Policy Interpretation
In Cicciarella v. Amica Mutual Insurance Company, this Court set forth the
method by which insurance policies are interpreted.
In Texas, insurance policies are controlled by the rules of construction that
are applicable to contracts generally. We will not rewrite the terms of the
Policy; instead we enforce it as written. Our primary concern is to give effect
to the intentions of the parties as expressed in the instrument. Thus, in
interpreting the Policy, we construe all parts of the document together, giving
effect to the intent of the parties. The determination whether terms are
ambiguous is a question of law. A contract is ambiguous only ‘when its
meaning is uncertain and doubtful or it is reasonably susceptible of more than
one meaning.’ . . . . We interpret and construe insurance policies liberally in
favor of the insured, especially when dealing with exceptions and words of
limitation.
Cicciarella v. Amica Mutual Ins. Co., 66 F.3d 764, 768 (5th Cir. 1995) (internal
citations omitted).
C. Is Diana Green an Insured?
Jaclyn Green Keegan maintains that Diana Green is not an “insured” as
defined in the policy because she did not reside with Russell Green at the time she
was injured. Jaclyn Green Keegan claims the severability clause has the effect of
providing separate policies of insurance to Russell and Linda Green. As such,
Russell Green’s separate policy would only exclude coverage for bodily injury to
Russell Green, or residents of his household. Because Diana Green did not live
with Russell Green, she would not be excluded under Russell Green’s separate
policy.
In Walker v. Lubermans Mutual Casualty Company., 491 S.W.2d 696
(Tex.Civ.App.– Eastland, 1973, no writ), Mr. Walker was sued for the intentional
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torts committed by his child. The insurance policy at issue in that case contained an
exclusion for intentional harm caused by the insured, as well as a severability
clause.1 In finding that Mr. Walker was covered under the policy, the court
observed that the purpose of the severability clause was to sever the policy so that
the acts of one insured would not deny coverage to another insured. Id. at 699.
Specifically citing the language of the severability clause, the court further
recognized the rule “that a policy extending coverage to several persons creates
several obligations on the part of the insurer, so that a particular insured is not
precluded from recovering merely because the claim of another insured is barred
under the terms of an exclusion.” Id. (citing Arenson v. Nat’l Auto. & Cas. Ins. Co.,
286 P.2d 816 (Cal. 1955)).
The rule cited by the court in Walker continues to be followed by Texas
courts. See Admiral Ins. Co. v. Trident NGL, Inc., 988 S.W.2d 451 (Tex. App.–
Houston [1st Dist.] 1999, writ denied) ( holding “[w]hen, as here, a policy has a
‘severability of interests’ clause, each insured against whom a claim is brought is
treated as if it was the only insured under the policy”); see also Western Heritage
Ins. Co. v. Magic Years Learning Ctrs. and Child Care, Inc., 45 F.3d 85, 89 n.3
(5th Cir. 1995)(noting endorsement, which contained severability clause, “must be
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The exclusion provision stated
EXCLUSIONS– COVERAGE D [personal liability] shall not apply:
5. to bodily injury or property damage caused intentionally by or at the
direction of the Insured; . . . .
The severability clause provided that
[t]he insurance afforded under Coverage D applies separately to each Insured
against whom claim is made or suit is brought . . . .
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applied separately to each insured”). Indeed, State Farm does not dispute that a
severability clause serves to provide coverage in a situation like that presented in
Walker, where there exists an “innocent” insured who did not commit the conduct
excluded under the policy.
Jaclyn Green Keegan relies heavily on the Minnesota Supreme Court ruling in
American National Fire Insurance Company v. Estate of Fournelle, 472 N.W.2d
292 (Minn. 1991). In Fournelle, Robert and Joann Fournelle divorced and Robert
Fournelle left the marital residence. Mr. Fournelle returned to the marital residence
to visit his sons and during the visit he shot and killed his sons and then committed
suicide. Joann Fournelle brought a wrongful death action against Robert Fournelle’s
estate. Under the homeowner’s policy issued by American National, both Robert
and Joann Fournelle were named insureds. The children were not named insureds,
but the policy had a provision nearly identical to the one in the instant case having
the effect of making the children insureds.
The exclusion at issue in the instant case is also almost identical to the one in
Fournelle, as is the severability clause.2 The Fournelle court stated that “[t]o claim
that the household exclusion applies because the children were residents of a named
insured’s household misconstrues not only the policy language, but also the doctrine
2
The provisions at issue in Fournelle are as follows:
Coverage E– Personal Liability, does not apply to
* * *
f. bodily injury to you and any insured . . . .
Severability of Insurance. This insurance applies separately to each insured.
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of severability.” The court continued noting
American National [the insurer], as drafter of the policy, inserted the
severability clause for some purpose. The policy states: ‘This insurance
applies separately to each insured.’ A reasonable interpretation of these
words leads to the obvious and singularly correct conclusion that each insured
must be treated as if each were insured separately, applying exclusions
individually as to the insured for whom coverage is sought.
The fact that the children resided with Joann Fournelle, a named insured, and
otherwise qualify as insureds with reference to Joann Fournelle is “of no concern,”
because Mrs. Fournelle was not the insured seeking protection. The court
concluded that because the children did not reside with Robert Fournelle at the time
of their death, the policy afforded coverage. Jaclyn Green Keegan contends
Fournelle is controlling. Like the children in Fournelle, Diana Green was not a
resident of the named insured Russell Green’s household at the time of her injuries.
Diana Green is not seeking recovery from the named insured Linda Green, with
whom she resided.
State Farm argues that the severability clause has no application to the
household exclusion because the exclusion is drafted in terms of “an insured” rather
than “the insured.” State Farm claims that the term “an insured” has the same
meaning as “any insured.” It argues “the insured” does not refer to all insureds, but
instead that “the term is used to refer to each insured as a separate and distinct
individual apart from any and every other person who may be entitled to coverage.”
Commercial Standard Ins. Co. v. American General Ins. Co., 455 S.W.2d 714, 721
(Tex. 1970). When a policy includes the phrases “an insured” or “any insured,”
State Farm contends that the intent is to deny coverage to anyone defined as an
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insured, irrespective of the severability clause. While State Farm recognizes that
severability clauses function to spread protection to the limits of coverage, it states
that they do not define who is an insured, nor do they negate bargained for
exclusions. Contrary to State Farms’ position, there is no language in the policy to
suggest that the severability clause is only applicable to the question of coverage for
a co-insured who did not personally commit the act giving rise to liability.
State Farm relies upon a decision of the New Hampshire Supreme Court in
Sciaudone v. Steuk, 512 A.2d 1108 (N.H. 1986), which addressed a set of facts
similar to those in Fournelle. The Steuk court found that the household exclusion
denying coverage for bodily injury to “any insured” barred coverage for any
liability. The court summarily dismissed the severability clause argument that the
policy must be construed as divisible, stating that “[w]hatever its effects may be in
identifying the nature of an insured interest and the extent of coverage, the clause
has nothing to do with identifying the insureds.” Id. at 1111.
Given the conflicting interplay between the definition of the term “insured,”
the meaning of the phrases “the insured” and “an insured,” and the severability
clause, we find as a matter of law that the policy language is ambiguous. See West
American Ins. Co. v. Av & S, 145 F.3d 1224 (10th Cir. 1998) (finding policy which
contained exclusion referring to “any insured,” as well as severability clause, was
ambiguous). State Farm’s argument, in fact, supports this result. Accordingly, we
must adopt a construction of the policy that affords coverage to the insured. See
Nat’l Union Fire Ins. Co. v. Hudson Energy Co., 811 S.W.2d 552, 555 (Tex. 1991)
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(under Texas law, provisions inserted in insurance policy by insurer that exclude
coverage are strictly construed against insurer if such provisions are subject to two
reasonable constructions and where one interpretation favors coverage). Construing
the policy favorably to the insured, we find that the severability clause treats each
named insured separately. Under this interpretation, when the severability clause is
read in conjunction with the household exclusion, the policy provides coverage to
the insured.
In United Fire & Casualty Company v. Reeder, we noted that “[s]everability
clauses also have been applied in connection with the family or household exclusion
for ‘bodily injury to you or an insured” and cited Fournelle. United Fire & Cas.
Co. v. Reeder, 9 F.3d 15, 18 (5th Cir. 1993). Applying Louisiana law, we
distinguished Fournelle stating “[t]he case at bar presents a materially different
situation” in that coverage is sought for a claim “that is excluded by unambiguous
policy language.” Citing Steuk, we noted that in such a case “[t]he severability
clause provides no succor to appellants.” Because the policy language in the instant
case is ambiguous, the severability clause is not accorded the same fate as the one in
Steuk or Reeder.
Fournelle and Steuk support our finding that the policy is susceptible to more
than one reasonable interpretation. See State Farm Fire & Cas. Co. v. Reed, 873
S.W.2d 698, 701 (Tex. 1993) (citing cases from various jurisdictions giving
different interpretations of similar policy provision). In Fournelle, the court held
that a reasonable interpretation of the severability clause lead to the conclusion that
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the household exclusion did not apply to children who were residents of a named
insured’s home. The Steuk court, on the other hand, dismissed any application of
the severability clause to an unambiguous policy definition of “insured.” Strictly
construing the policy language against the insurer and adopting the interpretation
most favorable to the insured, we hold that coverage exists under the policy for
Diana Green’s injuries.
In view of our disposition of this case, it is not necessary for us to consider
Plaintiffs’ alternate argument.
For the foregoing reasons, the district court’s decision is REVERSED and we
RENDER judgment declaring that the policy of insurance issued by State Farm
provides coverage for bodily injury to Diana Green and, therefore, State Farm has a
duty to defend and indemnify Linda Green, as the administratrix of the estate of
Russell Green, for such injuries.
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