North American Specialty Insurance v. Royal Surplus Lines Insurance

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit

FILED
August 22, 2008

No. 07-20488 Charles R. Fulbruge III
Clerk

NORTH AMERICAN SPECIALTY INSURANCE COMPANY, as successor in
interest to Commercial Underwriters Insurance Company

Plaintiff - Appellant
v.

ROYAL SURPLUS LINES INSURANCE COMPANY; EVANSTON
INSURANCE COMPANY

Defendants - Appellees

Appeal from the United States District Court
for the Southern District of Texas

Before SMITH, WIENER and HAYNES, Circuit Judges.
HAYNES, Circuit Judge:
This case involves a dispute between two primary insurers, Royal Surplus
Lines Insurance Company (“Royal”) and Evanston Insurance Company
(“Evanston”), and an excess insurer, North American Specialty Insurance
Company (“North American”),1 and arises out of a tort suit against a nursing
home. North American appeals the district court’s grant of summary judgment
in favor of Royal and Evanston. For the reasons set forth below, we AFFIRM.

1
North American is a successor to Commercial Underwriters Insurance Company,
under whose name the original suit was brought.
 No. 07-20488

I. BACKGROUND
Velma Carr sued the Heritage Sam Houston Gardens nursing home, its
parent company Heritage Housing, and a number of its employees in state court
for “continuing negligence” in the nursing home’s care of her husband, Raymond
Carr. Mr. Carr resided at the nursing home from February 1999 to June 2000,
when he was transferred to another home. He died in 2002. The suit alleged
that the nursing home’s “pattern and practice of ongoing neglect” caused Mr.
Carr to suffer from “a dislocated shoulder, pressure sores, skin tears and
contusions, ulcers,” and other “pain” and “indignity” resulting from failures of
basic care. At trial, a jury awarded over $4.5 million in actual and punitive
damages. Royal thereafter settled the case with Mrs. Carr on behalf of the
individual nurse defendants and took the position that its coverage was thereby
exhausted.2
The two corporate defendants appealed, with North American paying the
costs of the appeal, and a state appellate court reversed the trial judgment
against them. Heritage Housing Dev., Inc. v. Carr, 199 S.W.3d 560, 572 (Tex.
App.SSHouston [1st Dist.] 2006, no pet.). It rendered judgment in favor of
Heritage Housing and remanded for a new trial against the nursing home.3 Id.
Subsequently, North American paid $1.625 million to settle with the Carrs on
behalf of the nursing home before another trial was held.
Meanwhile, North American filed a lawsuit, which was removed to federal
court, over liability coverage for damages and defense costs incurred by insureds

2
Evanston took the position that, because the Royal policy afforded the most coverage,
Royal should handle the defense with Evanston contributing to it. At oral argument, Evanston
stated that it has settled all claims with Royal regarding their respective obligations to each
other.
3
The remand was based upon the appellate court’s determination that submission of
Heritage Housing’s negligence as part of the question asking the jury to calculate each party’s
percentage of responsibility led to an incorrect result.

2
 No. 07-20488

in the underlying tort suit. During the period over which Mrs. Carr alleged
negligence, the insureds had three successive, non-overlapping insurance
policies providing primary liability coverage: a $1 million policy from Royal
covering April 1998 to April 1999; a $1 million policy from Royal covering April
1999 to April 2000; and a $500,000 policy from Evanston covering April 2000 to
April 2001. Concurrent with the primary policies, the insureds also had two
policies providing excess coverage: a $5 million policy from North American
covering April 1998 to April 1999 and a $5 million policy from North American
covering April 1999 to April 2000. All of these policies were issued to the
insureds with knowledge that the business being insured was a long-term health
care facility. As Evanston noted, North American did not have an excess policy
for the period covered by the Evanston policy. It is undisputed that, in
combination, Evanston and Royal have paid more than $1 million in defense and
indemnity costs for the Carr lawsuit. North American concedes that if only one
policy amount and only one policy type is implicated by the Carr lawsuit, then
Appellees owe nothing further.
In the coverage case, North American argued, inter alia, that Mrs. Carr
had sued for discrete acts of negligence occurring over the course of the three
primary policy periods such that the primary coverage limits should be
“stacked.” North American’s excess coverage then would not be triggered until
the limit of the total of all three primary policies ($2.5 million) has been reached.
North American further argued that the stacking principle should apply to
defense costs, in addition to indemnity coverage. Finally, North American
argued that the defense costs incurred on behalf of the nursing home’s parent
company should be allocated to the Commercial General Liability (“CGL”) part

3
 No. 07-20488

of the primary insurance policies rather than the Hospital Professional Liability
(“HPL”) part.4
On October 29, 2004, the district court granted partial summary judgment
to Royal and Evanston, holding that the policies could not be temporally
“stacked” for purposes of indemnity payments and that defense costs could not
be allocated to the CGL portion of the policy. Commercial Underwriters Ins. Co.
v. Royal Surplus Lines Ins. Co., 345 F. Supp. 2d 652, 658 (S.D. Tex. 2004).
Thereafter, the court granted further partial summary judgment to Royal and
Evanston, holding that the policies could not be temporally “stacked” for defense
cost allocation purposes. Ultimately, the court issued final summary judgment
as to all parties and issues, and this appeal followed.
II. STANDARD OF REVIEW
We review a grant of summary judgment de novo. Allstate Ins. Co. v.
Disability Servs. of the Sw. Inc., 400 F.3d 260, 262-63 (5th Cir. 2005). Summary
judgment is proper when the pleadings and evidence on file “show that there is
no genuine issue as to any material fact and that the moving party is entitled to
a judgment as a matter of law.” Celotex Corp. v. Catrett, 477 U.S. 317, 322
(1986) (citations omitted).
III. DISCUSSION
This case involves, in essence, two forms of stacking: (1) temporal, across
policies covering different time periods; and (2) subject matter, across policies
within a time period that cover different potential liabilities. Within the first
category, North American seeks stacking of two different things – indemnity
payments and defense costs.
A. Equitable Subrogation

4
Because the coverage limits applied separately to each part, a policy with a $1 million
limit allowed $1 million of CGL coverage and $1 million of HPL coverage. Thus, North
American’s argument, if successful, would provide for more primary coverage before reaching
its excess layer.

4
 No. 07-20488

North American’s lawsuit is based on its contention that it is entitled to
equitable subrogation as an excess carrier against primary carriers. At the
outset, then, the question arises whether North American can assert such a
claim here. Evanston also challenges whether North American sought recovery
on an equitable subrogation theory in the district court. Texas cases providing
a right of equitable subrogation to an excess carrier involve an excess carrier
suing a primary carrier, where their respective policies overlap temporally. See,
e.g., Am. Centennial Ins. Co. v. Canal Ins. Co., 843 S.W.2d 480, 481 (Tex. 1992)
(allowing equitable subrogation by an excess carrier to the insured’s Stowers5
claim against the primary carrier). That is not the case here as to Evanston. As
a result, North American cannot “step into the shoes” of its insured as to a
primary carrier to which North American is not excess.6 Royal Ins. Co. v.
Caliber One Indem. Co., 465 F.3d 614, 625 (5th Cir. 2006).7 North American
cannot recover against Evanston under a theory of equitable subrogation.8
Because Evanston’s arguments under the stacking theory are also correct, we
discuss the Evanston policy along with the Royal policies in that analysis below.
This case potentially presents the issue of whether recent Texas cases
have eroded the underpinnings of Canal even in cases of temporally overlapping
excess and primary policies, such as those of North American and Royal. See

5
G.A. Stowers Furniture Co. v. Am. Indem. Co., 15 S.W.2d 544 (Tex. Comm’n App.
1929, holding approved).

6
Evanston also argues that North American never raised the principle of equitable
subrogation in the trial court; North American concedes it did not “use the magic words” but
argues that it adequately raised the concept below.
7
We are puzzled by North American’s contention at oral argument that this case was
decided under Louisiana law. The opinion expressly states that it was decided under Texas
law.
8
Thus, we need not determine if North American properly raised this ground in the
trial court.

5
 No. 07-20488

Excess Underwriters at Lloyd’s v. Frank’s Casing Crew & Rental Tools, Inc., 246
S.W.3d 42, 48-50 (Tex. 2008) (holding that absent an express agreement to the
contrary, a carrier who settles a claim later determined not to be covered by its
policy cannot sue the insured for reimbursement of the excess amount); Mid-
Continent Ins. Co. v. Liberty Mut. Ins. Co., 236 S.W.3d 765, 768 (Tex. 2007)
(holding that in the absence of an agreement with each other, a primary carrier
for the same policy period as another primary carrier has no right of contribution
against the other carrier even if it pays more than its pro rata share of the
defense or indemnity costs). Mid-Continent distinguishes Canal as follows: “In
Canal, we recognized equitable subrogation as a basis for an excess insurer’s
recovery against a primary insurer to prevent a primary insurer from taking
advantage of an excess insurer, acting solely as such, when a potential judgment
approaches the primary insurer’s policy limits.” 236 S.W.3d at 776 (citing Canal,
843 S.W.2d at 483). Canal involved an equitable subrogation claim based upon
the insured’s own Stowers claim against the primary carrier.
At oral argument, Royal’s counsel conceded that the principles of equitable
subrogation announced in Canal have not been abrogated by later decisions.
Because we resolve this case on the stacking arguments, we need not decide the
question of whether equitable subrogation applies to the Royal policies.
B. Temporal Stacking
1. Indemnity
Thus, we turn to the stacking issues. “Stacking” refers to the concept of
taking policy limits from multiple, but not overlapping, policies potentially
covering the same lawsuit and adding those limits together. Am. Physicians Ins.
Exch. v. Garcia, 876 S.W.2d 842, 854-55 (Tex. 1994). In Garcia, the Texas
Supreme Court considered what coverage limit to apply when there are
consecutive policies covering distinct policy periods and a claim occurrence
extends throughout multiple policy periods. The court held that the coverage

6
 No. 07-20488

limits “could not be ‘stacked’ to multiply coverage for a single claim involving
indivisible injury” such that the coverage limit would be the “sum of the limits
provided by the applicable policies.”9 Id. at 853-54. Instead, when “a single
occurrence triggers more than one policy, covering different policy periods, . . .
the insured’s indemnity limit should be whatever limit applied at the single
point in time during the coverage periods of the triggered policies when the
insured’s limit was highest.” Id. at 855.
The parties in this case do not dispute the validity of Garcia’s anti-
stacking rule. Rather, they disagree about whether the liability arising from
Mrs. Carr’s suit involved a single covered event or multiple discrete covered
events. Under Garcia’s rule, if the negligence at the nursing home constituted
a single covered event, it would trigger only one coverage limit. But if the
negligence consisted of multiple, discrete covered events, each such event would
trigger its own separate coverage limit.
In answering this question, we begin with the policy language. The Royal
policies cover medical incidents and define a “medical incident” as “any act or
omission: a. In the providing of or failure to provide professional health care
services to your patients, including: (1) The providing or dispensing of food,
beverages, medications or medical supplies or appliances in connection with such
services; . . . .” They further state that “[a]ll related ‘medical incidents’ arising

9
The court explained the rationale for this rule:

[The argument for stacking] rests on the assumption that [the insured] had
three times more insurance than he purchased. At no time during the four
relevant coverage years did any two policies overlap. Thus, at no time during
the four years did [the insured] carry liability insurance with a per-occurrence
limit greater than $500,000. [The insured] did not purchase malpractice
insurance for $1.5 million in coverage, as he might have done by purchasing
excess or umbrella coverage, and therefore he may not claim to benefit from $1.5
million in coverage by stacking temporally distinct policies.

Garcia, 876 S.W.2d at 854-55.

7
 No. 07-20488

out of the providing of or failure to provide professional health care services to
any one person shall be considered one ‘medical incident.’” The Evanston policy
likewise provides that its Professional Liability coverage insures sums “the
Insured shall become legally obligated to pay as damages because of malpractice
arising out of the rendering of, or failure to render, . . . the following professional
services in the Named Insured’s . . . , nursing home . . . : medical . . . or nursing
treatment to a patient, including the furnishing of food or beverages in
connection therewith.” It further states that “[t]wo or more claims arising out
of a single act, error, omission or occurrence or a series of related acts, errors,
omissions, or occurrence[s] shall be treated as a single claim.”10
The key word in both of these policies is the same: “related.” Under both
policies, a series of multiple incidents becomes a single continuing incident or
occurrence only if they are “related.”11 Although the policies do not further
clarify the meaning of “related,” a Texas appellate court has construed the term
in a similar insurance contract to mean “having a logical or causal connection.”
Columbia Cas. Co. v. CP Nat’l, Inc., 175 S.W.3d 339, 347 (Tex. App.SSHouston
[1st Dist.] 2004, pet. denied).
In this case, the district court considered summary judgment evidence
consisting of the pleadings, trial transcript, and jury findings of the underlying
suit, and concluded that the negligent acts at the nursing home were related.12

10
As our court has previously held, “Whether there was one occurrence or more is
determined by the policies’ respective terms.” Caliber One, 465 F.3d at 621.
11
Under the Royal policy, the incidents must also relate to a single person. That
requirement is not at issue here, as the incidents all related to Mr. Carr.
12
North American argues that it was error for the district court to rely in part on the
complaint and jury findings. There is no support for this assertion. To the contrary, in
determining “the facts established in the underlying litigation,” we “review the record from the
underlying suit, which includes the pleadings, the trial transcript, the insurance policy, and
the judgment.” Great Am. Lloyds Ins. Co. v. Mittlestadt, 109 S.W.3d 784, 787 n.1 (Tex.
App.SSFort Worth 2003, no pet.). In the related circumstance of apportioning a settlement

8
 No. 07-20488

Mrs. Carr’s complaint alleged “serious bodily injuries” which were “proximately
caused by the continuing negligence” of the insureds. 345 F. Supp. 2d at 667-68.
Elsewhere it referred to the nursing home’s “continuing course of repeated
negligence.” Id. at 668. The court summarized:
[T]he plaintiff’s theory in the underlying suit, a theory upon which
she prevailed, was that Mr. Carr was injured by a series of acts and
omissions that were related, having both causal connections (i.e., the
pattern of negligence was caused by management’s focus on cutting
costs) and logical connections (i.e., all of the relevant acts/omissions
are logically connected to the concept of professional nursing home
care, to which Mr. Carr was entitled).
Id.
Thus, while one could argue that each day the nursing home committed
an act of negligence in failing to properly feed or treat Mr. Carr, these events are
all “related.” North American points out that Mr. Carr’s problems began with
poor nutritional care, followed by a shoulder injury, which led to mobility
problems, which led to sores, skin ulcers and similar conditions. While North
American contends these are discrete events, they all stemmed from a pattern
of neglect and incompetence. Indeed, as noted above, the district court concluded
that the Carrs’ theory of the case in its complaint, continuing into its
presentation of evidence at trial, was one of a continuing pattern of neglect, not
a series of discrete events.13 In this appeal, North American has not pointed to

between covered and uncovered claims, we have held that the trial court may look to all
relevant evidence, whether or not it would have been admissible in the liability case. Am. Int’l
Specialty Lines Ins. Co. v. Res-Care, Inc., 529 F.3d 649, 657-58 (5th Cir. 2008). We agree that
the presence of a broad form submission to the jury of the negligence question is not dispositive
on the question of whether there was a continuing pattern of neglect. Here the entire theory
of the case – from pleadings through trial – was that of a continuing pattern of neglect, rather
than a series of unrelated and disconnected wrongs.
13
Although the jury verdict in the underlying liability case was ultimately vacated by
the appellate court and remanded for a new trial as to the nursing home, both sides and the
district court relied upon the evidence from the first trial. We conclude that it is appropriate
to rely upon such evidence in assessing the question of the basis for the settlement. If North

9
 No. 07-20488

any specific evidence showing discrete, unrelated injuries leading to discrete
damages with individualized, unrelated damages. “Rule 56 does not impose
upon the district court a duty to sift through the record in search of evidence to
support a party’s opposition to summary judgment. Nor is it our duty to do so
on appeal.” Stults v. Conoco, Inc., 76 F.3d 651, 657 (5th Cir. 1996) (citations
omitted).
We conclude that Garcia applies to prevent North American from
temporally stacking the policies for indemnity purposes. Under Garcia, the
insured (and North American as its “equitable subrogee”) is entitled to
“whatever limit applied at the single point in time during the coverage periods
of the triggered policies when the insured’s limit was highest.” Garcia, 876
S.W.2d at 855. In this case, that is $1 million.
2. Defense Costs
The policies in question are “eroding” policies. Liability insurance policies
often have two components: defense and indemnity. In many liability policies,
the policy limits refer only to the indemnity obligation (i.e., the duty to pay
covered claims), and the obligation to defend a liability suit is not capped by the
policy limits. In an eroding policy, by contrast, the insurer’s payments to defense
counsel to defend the liability suit count against the policy limits. Westchester
Fire Ins. Co. v. Admiral Ins. Co., 152 S.W.3d 172, 192 (Tex. App.SSFort Worth
2004, pet. denied). For example, if the eroding policy limits are $10,000, and the
insurer pays $10,000 in reasonable defense fees, the policy limits for that
occurrence are exhausted.
Thus, in the Garcia case, the focus of the inquiry was the indemnity
obligation, because the duty to defend did not have a policy limit. Here, the

American wished to bring any other relevant evidence before the district court, it could have
done so.

10
 No. 07-20488

three policies do have a limit on defense costs because those costs, including
attorneys’ fees, are included in the “per medical incident” limits.
North American argues that even if the Garcia anti-stacking rule applies
to prevent stacking for indemnity purposes, it should allow stacking for defense
purposes. North American cited no cases for this proposition and acknowledges
that there are few cases nationwide addressing eroding policies at all, much less
in the context of stacking. It suggests, then, that even if Garcia requires the
insured to select one policy under which obligations would be measured, we
should allow the insured to select one policy for indemnity and another for
defense, because of the eroding nature of the policies.
North American makes two arguments in support of this contention,
unsupported by any precedent. First, North American argues that fairness
dictates that the insured should get the benefit of having paid multiple
premiums over the years. This argument would make sense if the Carr family
were the only potential claimant in any of those years. But insurance is
purchased to cover unintended, unexpected events, few or many, year after year.
An insured who buys car insurance every year for twenty-five years and never
has an accident is not entitled to a refund of premiums. He received what he
bargained for – insurance for each year.
Here, we have no information about other claimants, but it matters not
whether they were few or many. The nursing home bargained for insurance year
after year, and it received that insurance. If what it wanted was more coverage
each year, it could obtain that by paying more – as it did by buying the excess
policies for two of the three years. If it wanted higher primary policy limits, it
could obtain that by paying more for increased coverage. What it did instead
was insure itself temporally under policies providing that related incidents
involving one injured person constitute one claim, whether year after year or
within one year.

11
 No. 07-20488

Even more importantly, if the insured wanted a policy that had an
unlimited defense obligation, rather than an eroding one, it should have
contracted for such a policy. North American’s argument would actually give the
nursing home the benefit of an additional $1 million in defense costs coverage,
despite its failure to contract for that coverage. Thus, the “fairness” argument
is unpersuasive.14
North American makes a second argument directed only at the Royal
policies, citing the following policy language:
The limits of this Coverage Part apply separately to each
consecutive annual period and to any remaining period of less than
12 months, starting with the beginning of the policy period shown
in the Declarations, unless the policy period is extended after
Issuance for an additional period of less than 12 months. In that
case, the additional period will be deemed part of the last preceding
period for purposes of determining the Limits of Insurance.
North American argues that this language permits the limits to restart each
year on a continuing medical incident, despite specific policy language to the
contrary.
“Interpretation of insurance contracts in Texas is governed by the same
rules as interpretation of other contracts. . . . [W]hen a contract provision makes
a general statement of coverage, and another provision specifically states the
time limit for such coverage, the more specific provision will control.” Forbau v.
Aetna Life Ins. Co., 876 S.W.2d 132, 133-34 (Tex. 1994). Here, the policy
specifically provides that all related medical incidents constitute one incident.
The more general language quoted above does not purport to change this specific
limitation; instead, it explains what generally happens to policy limits, including
aggregate limits, if a policy is renewed or extended for an additional year or

14
Additionally, under Garcia, the insured is entitled to select the policy that provides
the most coverage from those potentially providing coverage, thereby allowing the insured to
select an applicable year in which the individual or aggregate limits are the highest. Garcia,
876 S.W.2d at 855.

12
 No. 07-20488

subset thereof. Thus, this language does not start a new limit of liability
running in favor of the insured on the same medical incident.
C. Subject-Matter Stacking
This leads us to North American’s last stacking argument. North
American impliedly concedes that the actual settlement it paid was for a claim
covered under the HPL portion of the policy. However, North American argues
for a stacking of sorts as to the CGL and HPL portions of each policy for defense
costs. North American reasons that Heritage Housing’s defense actually
triggered the CGL portion of the policies in lieu of or in addition to the HPL
policies.
Under Texas law, a duty to defend is determined under the “eight corners”
rule. In Texas, “[t]he eight-corners rule provides that when an insured is sued
by a third party, the liability insurer is to determine its duty to defend solely
from terms of the policy and the pleadings of the third-party claimant. Resort
to evidence outside the four corners of these two documents is generally
prohibited.” GuideOne Elite Ins. Co. v. Fielder Rd. Baptist Church, 197 S.W.3d
305, 307 (Tex. 2006). The duty to defend does not depend upon the truth or
falsity of the allegations: “A plaintiff’s factual allegations that potentially
support a covered claim is [sic] all that is needed to invoke the insurer’s duty to
defend . . . .” Id. at 310 (citing Heyden Newport Chem. Corp. v. S. Gen. Ins. Co.,
387 S.W.2d 22, 26 (Tex. 1965)). North American contends that, under the eight
corners rule, Royal was obligated to defend Heritage Housing under the CGL
portion of the policy. Thus, it argues that at least another $1 million in policy
limits are available here.
North American’s contention is based upon the argument that, until 2005,
Texas law treated claims for faulty supervision in a health care setting as
“ordinary,” rather than “health care” negligence claims. Under this argument,
the claims against Heritage Housing for inadequate staffing and funding were

13
 No. 07-20488

not health care liability claims. Questions about what claims constitute health
care liability claims often have arisen in Texas because health care liability
claims are subject to strict pleading and proof requirements under Texas law.
See TEX. CIV. PRAC. & REM. CODE ANN. §§ 74.001-.507 (Vernon 2005) (replacing
TEX. REV. CIV. STAT. ANN. art. 4590i (Vernon 2003)). Thus, the question of
whether a claim was or was not a health care liability claim was important in
contexts other than insurance. North American contends that the 2005 decision
of Diversicare Gen. Partner, Inc. v. Rubio, 185 S.W.3d 842 (Tex. 2005) changed
Texas law regarding what constitutes a health care liability claim, and made
understaffing and underbudgeting claims “health care liability” claims for the
first time. Thus, since the Carr litigation was defended before that date, North
American reasons that the defense obligation should be viewed under the law
existing at the time, making the claims against Heritage Housing CGL claims.
We need not decide whether subject-matter allocation of defense costs
under an eroding policy is judged by the law at the time of defense or some time
later, because North American’s argument rests on a faulty premise. In fact,
Rubio did not change Texas law. For at least a decade before Rubio, the Texas
Supreme Court (and numerous intermediate appellate courts) had made clear
that a plaintiff’s legal theories and labels do not control the question of whether
a claim is a health care liability claim subject to (then existing) Article 4590i,
known as the Medical Liability and Insurance Improvement Act (“MLIIA”).
Garland Cmty. Hosp. v. Rose, 156 S.W.3d 541, 543-44 (Tex. 2004) (citing
authorities dating back to 1994).
Plaintiffs cannot use artful pleading to avoid the MLIIA’s
requirements when the essence of the suit is a health care liability
claim. . . . To determine whether a cause of action falls under the
MLIIA’s definition of a “health care liability claim,” we examine the
claim’s underlying nature. . . . If the act or omission alleged in the
complaint is an inseparable part of the rendition of health care
services, then the claim is a health care liability claim. . . . One

14
 No. 07-20488

consideration in that determination may be whether proving the
claim would require the specialized knowledge of a medical expert.
Id. These same standards were used to determine Rubio as they had been in
numerous cases before. Given the many cases defining health care claims by
substance rather than form, Rubio was not some revolutionary change in Texas
law.
Under Texas law, HPL coverage like that in the Royal and Evanston
policies provides for breaches of professional standards of health care, while CGL
coverage provides for other non-care related negligence. See generally Utica
Nat’l Ins. Co. of Tex. v. Am. Indem. Co., 141 S.W.3d 198, 201 (Tex. 2004)
(addressing a professional services exclusion in a CGL policy). Mrs. Carr’s suit
was manifestly a claim alleging breach of professional care. North American
points to a reference in Mrs. Carr’s complaint to a corporate policy of
underbudgeting and understaffing. However, this reference is not a claim of
negligence unrelated to standards of professional care. It is not an actionable
tort merely to underbudget or understaff. Rather, Mrs. Carr’s allegation
amounted to a claim of negligence because the alleged Heritage Housing policy
of underbudgeting and understaffing caused the nursing home to deliver
inadequate medical care to Mr. Carr. Indeed, the only way to know whether a
nursing home is properly staffed is by resort to professional standards of care.
This claim fell squarely within the HPL side of the policies at issue. The
decision to defend the Carr case under the HPL coverage, rather than the CGL
coverage, was proper, and North American’s argument does not result in more
coverage.
IV. CONCLUSION
Texas law prohibits stacking policies that do not overlap to provide more
coverage than the highest limits of any one policy. That rule applies to both the
indemnity and defense portions of an eroding policy. Insureds who contract for

15
 No. 07-20488

an eroding policy are not entitled to a more favorable stacking rule than
insureds who pay more for an unlimited defense. The primary insurers in this
case defended and paid under their HPL policies, and the presence of CGL
coverage does not provide more coverage for this medical incident. The district
court’s order granting summary judgment to Evanston and Royal is AFFIRMED.

16