Lafarge Corp. v. Hartford Casualty Insurance

United States Court of Appeals,

Fifth Circuit.

No. 94-20137.

LAFARGE CORPORATION, et al., Plaintiffs,

Lafarge Corporation, Plaintiff-Appellee, Cross-Appellant,

v.

HARTFORD CASUALTY INSURANCE CO., Defendant-Appellant, Cross-
Appellee.

HARTFORD CASUALTY INSURANCE CO., Plaintiff-Appellant, Cross-
Appellee,

v.

LAFARGE CORPORATION, Defendant-Appellee, Cross-Appellant.

Aug. 21, 1995.

Appeals from the United States District Court for the Southern
District of Texas.

Before KING, GARWOOD and BENAVIDES, Circuit Judges.

GARWOOD, Circuit Judge:

Plaintiff-appellant Hartford Casualty Insurance Co. (Hartford)

appeals the district court's judgment that Hartford had a duty to

defend its insured, defendant-appellee Lafarge Corporation

(Lafarge), in the underlying litigation and ordering Hartford to

pay an apportioned amount of Lafarge's defense costs, as well as

Lafarge's attorneys' fees and prejudgment interest. Lafarge

cross-appeals, claiming that the district court erred in

apportioning Hartford's share of defense costs and in awarding

Hartford summary judgment on Lafarge's Texas Insurance Code claims.

We affirm in part, reverse in part, and remand.

Facts and Proceedings Below

1
 The present controversy arises out of a suit filed against

Lafarge and various other defendants by All American Pipeline

Company (All American). All American contracted with American West

Pipeline Constructors (American West) for the construction of a

pipeline to run from Santa Barbara, California, to McCamey, Texas.

American West subcontracted Leonard Pipeline-Anchor Wate (LAC) to

provide a special coating to protect the pipeline, which was to be

buried, from the elements. LAC is a joint venture; one of the

joint venturers, Anchor Wate, is a wholly-owned subsidiary of

Lafarge.

Sometime around February 1988, All American discovered that

the protective coating supplied by LAC had failed at the field

joints, damaging the pipeline. In August 1988, it sued, among

others, LAC, and Anchor Wate individually, for breach of contract,

breach of warranty, strict products liability, negligence, and

misrepresentation. All American also named Lafarge as a defendant

on the basis of a surety promise allegedly made by Lafarge on

behalf of LAC and its individual corporate venturers. In September

1989, All American amended its petition to add a claim against

Lafarge for its own negligence. In the amended petition, All

American also alleged that Anchor Wate was the alter ego of Lafarge

and that Lafarge was thereby liable for Anchor Wate's alleged

negligence.

Hartford was Lafarge's comprehensive general liability insurer

from April 1, 1987, to April 1, 1988. Lafarge tendered the

original petition to Hartford for defense on January 18, 1989.

2
Although Hartford initially acknowledged that the claims against

Lafarge might be covered under the policy, it ultimately denied

coverage. In response to Lafarge's notice that it intended to sue,

as required under the Texas Insurance Code, Hartford asserted that

it would reimburse only those defense costs incurred after August

13, 1990, the date on which Hartford first received All American's

amended petition. On February 12, 1991, Hartford filed a

declaratory judgment action against Lafarge and Anchor Wate in

federal district court in Virginia. On March 28, 1991, Lafarge

filed a breach of contract and declaratory judgment suit against

Hartford in Texas state court. Hartford removed the suit to the

district court below, where it was consolidated with the Virginia

action.

On May 17, 1991, Lafarge moved for partial summary judgment on

its breach of contract claims. Hartford filed a cross-motion for

summary judgment on the duty to defend and coverage issues, as well

as a motion for summary judgment on Lafarge's Texas Insurance Code

claims. By order of December 7, 1991, the district court granted

Lafarge's motion in part, finding that Hartford did have a duty to

defend under both the original and amended petitions. However, the

district court determined that, because the injury to the pipeline

was a continuing one and Hartford had provided coverage for only a

part of the period during which the injury accumulated,1 its

1
The district court found that the alleged injury began on
April 17, 1985 (the date the pipeline was placed in the ground)
and continued until the filing of All American's original
petition on August 8, 1988. Although the district court invited
the parties to present evidence of contrary dates, and noted in

3
liability should be prorated to reflect its proportionate "time on

the risk." It therefore held Hartford liable for 30% of Lafarge's

past and future defense costs.2 In addition, the district court

granted Hartford's cross-motion in part by dismissing Lafarge's

Texas Insurance Code claims; the district court determined that,

although ultimately wrong in its determination, Hartford had a

reasonable basis for contesting its duty to defend and that it had

acted reasonably in investigating and responding to the underlying

claims. Finally, it found that Hartford's motion for summary

judgment on the coverage issues was premature because the

underlying litigation had not yet been resolved.

Hartford then moved for clarification, and Lafarge for

reconsideration, of certain issues addressed in the December 7

order. The district court reaffirmed its order, but added that,

because Hartford's liability for defense costs had been

apportioned, Lafarge's deductible under the policy should also be

apportioned. It found that the policy was silent as to what should

occur if, as here, Hartford was required to pay only a percentage

of the defense costs, and therefore correspondingly reduced

its order of February 3, 1992, that Lafarge had presented a
"Petition for Correction of Dates of Property Damage," the
district court did not specifically address this motion and
ultimately again ordered the parties to submit further evidence
of the date damage to the pipeline began. In any event, the
parties do not question on appeal the district court's fixing of
these dates.
2
By agreement of the parties, this percentage was
subsequently amended to 33.9%.

4
Lafarge's deductible by 30%.3

After the underlying litigation with All American settled,

Lafarge filed a motion for entry of an award of money damages, pre-

and post-judgment interest, and attorneys' fees. Hartford filed

objections.4 The district court found that Lafarge was entitled to

an amount equal to 33.9% of its total defense costs, less 33.9% of

the $250,000 policy deductible. It also awarded prejudgment

interest on that sum at a rate of 10%.5 Lastly, the district

court, having undertaken a lengthy survey of applicable Texas law,

determined that Lafarge was entitled to an award of reasonable

attorneys' fees under Tex.Civ.Prac. & Rem.Code § 38.001(8). By its

final judgment of January 28, 1994, the district court awarded

Lafarge

1) defense expenses in the amount of $457,089.05;

3
The parties later agreed that the applicable percentage was
33.9%.
4
In addition, Hartford filed a motion for summary judgment
on Lafarge's claim for breach of the insurer's duty of good faith
and fair dealing. The district court granted this motion,
finding that the portion of its December 7, 1991, order relating
to Lafarge's Texas Insurance Code claims negated the "reasonable
basis" element of the common law bad faith claim and that Lafarge
had failed in the intervening year to come forward with any
additional summary judgment evidence to undermine that earlier
determination. Lafarge does not challenge this aspect of the
court's judgment on appeal.
5
Because it determined that the amount of attorneys' fees
owed under the insurance contract was not ascertainable from the
face of the document, the district court held that the Texas
prejudgment interest statute did not apply to the case and that
therefore it was not bound to apply the 6% interest rate
prescribed by the statute. It therefore made an "equitable
award" of prejudgment interest at the rate prescribed by
Tex.Rev.Civ.Stat.Ann. art. 5069-1.05 § 2. See Part V, infra.

5
 2) $138,183.61 in prejudgment interest;

3) $198,000 in attorneys' fees;

4) post-judgment interest at a rate of 3.67% (as
specified in 28 U.S.C. § 1961) on items 1 through 3 from the
date of judgment until paid; and

5) additional attorneys' fees in the amount of $30,000 if
Hartford pursues an unsuccessful appeal to this Court.

Hartford timely appealed to this Court; Lafarge timely

cross-appealed.

Discussion

I. Hartford's Duty to Defend

A. Policy exclusions.

Initially, Hartford argues that, under a variety of

exclusions in Lafarge's insurance policy, Hartford had no duty to

defend Lafarge in the underlying suit. In determining whether an

insurer has a duty to defend its insured, Texas courts generally

look only to the allegations of the plaintiff's complaint and the

terms of the insurance contract. American Alliance Insurance Co.

v. Frito-Lay, Inc., 788 S.W.2d 152, 153-54 (Tex.App.—Dallas 1990,

writ dismissed). Under this so-called "eight corners rule" or

"complaint allegation rule," the allegations of the complaint are

taken as true, and the duty to defend arises if the complaint thus

construed asserts a claim facially within the coverage of the

policy as reflected by its terms. Gulf Chemical & Metallurgical

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

Cir.1993). Even if the plaintiff's complaint alleges multiple

claims or claims in the alternative, some of which are covered

under the policy and some of which are not, the duty to defend

6
arises if at least one of the claims in the complaint is facially

within the policy's coverage. Rhodes v. Chicago Insurance Co., 719

F.2d 116, 119 (5th Cir.1983). The duty to defend is thus broader

than the duty to indemnify. Gulf Chemical, 1 F.3d at 369. Despite

the breadth of this duty when applicable, however, "[a]n insurer is

required to defend only those cases within the policy coverage....

If the petition only alleges facts excluded by the policy, the

insurer is not required to defend." Fidelity & Guaranty Insurance

Underwriters, Inc. v. McManus, 633 S.W.2d 787, 788 (Tex.1982)

(citations omitted).

Applying these principles, we conclude that most of the

exclusions on which Hartford relies in denying its duty to defend

are clearly not applicable to the case at hand. We find merit,

however, in Hartford's argument that the "incidental contract"

provision precluded a duty to defend against All American's

original petition, which only alleged a surety claim against

Lafarge. We therefore conclude that Hartford had no duty to defend

until the amended petition was tendered to it. We will address

each of Hartford's arguments in turn.

Hartford first argues that, under the policy's "own products"

exclusion, under which no coverage is provided for "property damage

to the named insured's products arising out of such products or any

part of such products," it is not required to defend Lafarge with

respect to that portion of damages that represented the cost of

replacing the coating, as opposed to the damages for the cost of

replacing the pipeline itself. This argument is wholly without

7
merit. That Hartford may not ultimately be required to indemnify

Lafarge for the replacement cost of the coating does not abrogate

its duty to defend a covered cause of action in the first instance.

The complaint clearly alleged that the defective coating caused

damage to the pipeline; this was the damage (or part of the

damage) for which recovery was sought.

Hartford next argues that the petition was ambiguous as to

when the damage to the pipeline occurred and that therefore an

exception to the eight corners rule should allow it to submit

evidence that the damage actually occurred outside the coverage

period.6 See Western Heritage Insurance Co. v. River

Entertainment, 998 F.2d 311, 313 (5th Cir.1993) ("[W]hen the

petition does not contain sufficient facts to enable the court to

determine if coverage exists, it is proper to look to extrinsic

evidence in order to adequately address the issue.").

Specifically, Hartford alleges that, as of the date the policy

expired, All American had yet to identify any section of the

pipeline that needed to be replaced.

Hartford's reliance on this narrow exception for truly

ambiguous complaints is misplaced. The complaint is simply not as

ambiguous as Hartford would have us believe. The petition alleges

that the damage was discovered sometime in February 1988, during

the period of Hartford's coverage. Regardless of when the damage

6
We note too that, although the district court gave the
parties ample opportunity to present evidence showing that the
dates of damage were different from those it had found, neither
party successfully pursued this challenge. See note 1, supra.

8
to the pipeline began, it was not a single event but a continuous

process that occurred over an extended period of time. It is

therefore reasonable to infer that, if as the complaint alleges,

the damage was discovered in February 1988, then some part of it

occurred during the period of Hartford's coverage.7 Where an

ambiguity exists, the eight corners rule requires the district

court to give the petition the most liberal reading possible,

resolving all legitimate doubts in favor of coverage. Continental

Savings Association v. U.S. Fidelity and Guaranty Co., 762 F.2d

1239, 1243, amended in part, 768 F.2d 89 (5th Cir.1985); see also

Cullen/Frost Bank of Dallas v. Commonwealth Lloyd's Insurance Co.,

852 S.W.2d 252, 259 (Tex.App.—Dallas 1993, writ denied). Clearly,

this is not a case in which it is "impossible to discern" whether

coverage is potentially implicated.8 Western Heritage, 998 F.2d at

7
Hartford's supposition that the operative date is the date
on which the pipeline had to be replaced is unsupported. The
damage complained of was the corrosion of the pipeline, which
necessitated replacement, not the replacement per se.
8
The cases Hartford cites in support of its position are
inapposite; they involve situations in which the complaint
either omitted or indisputably misrepresented material facts that
would have clearly excluded coverage. See, e.g., Western
Heritage, 998 F.2d at 313 (noting that complaint specifically
omitted reference to the fact that the third-party tortfeasor had
been intoxicated when he left the insured's establishment, an
obvious attempt to evade the clear exclusions of the policy);
McLaren v. Imperial Casualty and Indemnity Co., 767 F.Supp. 1364,
1374 (N.D.Tex.1991) (because insured's complaint did not state
any covered claim, "even if McLaren's damage suit pleading could
be read to allege facts that, if true, would cause coverage to
exist, Imperial nevertheless would not have a duty to defend the
suit because the facts alleged would be false"), aff'd, 961 F.2d
17 (5th Cir.1992), cert. denied, --- U.S. ----, 113 S.Ct. 1269,
122 L.Ed.2d 665 (1993); State Farm Fire & Casualty Co. v. Wade,
827 S.W.2d 448, 451 (Tex.App.—Corpus Christi 1992, writ denied)
(in the absence of any allegation concerning how the boat that

9
315.

Hartford also contends that the alter ego claim of the

amended petition was not covered because the policy excluded

coverage for injuries arising out of uninsured joint ventures in

which the insured participated. Because Anchor Wate's liability

arose out of its participation in the joint venture, Hartford

argues, it had no duty to defend against this claim. Hartford

argues that, if the complaint is sufficient to allege a claim

against Anchor Wate as a separate entity, Hartford was entitled to

discovery to prove that, on the contrary, all the claims actually

arose out of the conduct of the joint venture. This argument

ignores that the amended complaint also alleged that Lafarge as a

separate entity was itself guilty of negligence.9 If the complaint

contains both potentially covered and non-covered claims, the

insurer must defend the entire suit. Hartford Casualty Company v.

was the subject of the policy was used, court could not
determine, even "by reading the underlying petition broadly....
whether or not the personal boatowner's liability policy even
possibly provides coverage"); International Service Insurance
Co. v. Boll, 392 S.W.2d 158, 161 (Tex.Civ.App.—Houston 1965, writ
ref'd n.r.e.) (discussed in Gonzales v. American States Insurance
Co. of Texas, 628 S.W.2d 184, 186 (Tex.App.—Corpus Christi 1982,
no writ)), (when policy contained an exclusion for "any claim
arising from an accident while the insured vehicle was being
driven by Roy Hamilton Boll," but did not disclose that Roy
Hamilton Boll was the insured's son, and petition alleged only
that the car was being driven by the insured's son, the insurer
was permitted to introduce extrinsic evidence to show that the
insured only had one son and that his name was Ray Hamilton
Boll).
9
Indeed, the ultimate judgment in the underlying suit was
against Anchor Wate (as well as another Lafarge subsidiary) in
its separate capacity for negligence and misrepresentations
committed outside the joint venture.

10
Cruse, 938 F.2d 601, 603, 605 (5th Cir.1991). Because Lafarge was

thus entitled to a defense in any event, further discovery on the

joint venture issue would have been pointless with regard to

Hartford's duty to defend.

Hartford, however, contends that it had no duty to defend

Lafarge against the allegations of Lafarge's own negligence because

there was no occurrence within the terms of the policy. Under the

policy, an "occurrence" is defined as "an accident, including

continuous or repeated exposure to conditions, which results in ...

property damage neither expected nor intended from the standpoint

of the insured." Hartford argues that the failure of a product to

work does not constitute an accident. In addition, it contends

that corrosion of the pipeline was not an accident because exposure

to soil was contemplated.

Both these arguments are meritless. As discussed above, the

complaint sought damages not simply because the coating failed but

because the failure of the coating caused damage to the pipeline.

As the district court correctly found, there is an accident or

occurrence when the alleged product defect has caused damage to

other property. See, e.g., Cruse, 938 F.2d at 604-05; Travelers

Insurance Co. v. Volentine, 578 S.W.2d 501, 503

(Tex.Civ.App.—Texarkana 1979, no writ). Hartford's other

argument—that no accident occurred because exposure to the soil was

contemplated—is equally meritless. The very purpose of the coating

was to protect the pipeline from exposure to the soil. The damage

caused by the defective coating was an occurrence within the

11
meaning of the policy.

Lastly, Hartford argues that there is no coverage because the

alleged surety agreement did not "relat[e] to the conduct of the

named insured's business" as required by the policy's incidental

contract provision.10 Here we agree with Hartford. The policy

afforded certain coverage "with respect to liability assumed under

an incidental contract " and defined "incidental contract " as "any

oral or written contract relating to the conduct of the named

insured business."11 The original complaint alleged merely that

10
Alternatively, Hartford argues that the phrase "liability
assumed by contract" in the provision refers only to situations
where the insured is sued by the insured's promisee on the
insured's agreement to indemnify or hold harmless the promisee
from the promisee's tort liability to a third party or parties.
However, Hartford points to nothing in the language or structure
of the policy which indicates that the referenced provision is so
restricted, and Hartford offers no authority (and points to no
evidence) supporting its position in this respect.
11
The base policy's definitions section included the
following:

"incidental contract means any written (1) lease of
premises, (2) easement agreement, except in connection
with construction or demolition operations on or
adjacent to a railroad, (3) undertaking to indemnify a
municipality required by municipal ordinance, except in
connection with work for the municipality, (4)
sidetrack agreement, or (5) elevator maintenance
agreement;"

An endorsement respecting "contractual liability coverage,"
afforded certain coverage "with respect to liability assumed
under an incidental contract," and contained a provision
that: "The definition of incidental contract is extended to
include any oral or written contract or agreement relating
to the conduct of the named insured's business."

The base policy separately defined "insured" and "named
insured," the latter as follows: "named insured means the
person or organization named in Item 1. of the declarations
of this policy." It is not contended that LaFarge

12
Lafarge represented that "the resources of Cement Lafarge were

behind any project for which Anchor Wate contracted." It is clear

from the context that the alleged guarantee was of Lafarge's

ultimate financial responsibility. Lafarge has not argued, and we

have found no record evidence to suggest, that Lafarge supplied or

intended to supply materials, services, manpower, or anything else

to the project, either directly or by supplying same to Anchor Wate

or LAC, or was directly or indirectly involved in the project in

any way apart from its mere ownership of Anchor Wate's stock.

There is no evidence Lafarge did not conduct business of its own,

separate from that of Anchor Wate or other subsidiaries. See

Sentry Insurance Co. v. R.J. Weber Co., 2 F.3d 554, 556 (5th

Cir.1993) (under Texas law, burden is generally on insured to show

that claim against it is potentially within coverage of policy).

However, Lafarge contends, and the district court found, that

a contract that advances the interests of a subsidiary necessarily

"relates to" the parent's economic well being. While that is true,

it is not the same thing as "relates to the conduct of" the

parent's business. Just as we may not simply assume that the

subsidiary's business is the parent's business (many subsidiaries

are in businesses requiring licenses that their parents do not

have), so also we may not assume that conducting the subsidiary's

business is conducting the parent's business.

subsidiaries generally, or Anchor Wate or LAC specifically,
or indeed any entity other than LaFarge itself, was named or
included in Item 1 of the policy declarations or was "the"
(or a) "named insured" under the policy.

13
 Lafarge reminds us of the Texas rule of insurance contract

construction that, "when the language used is subject to two or

more reasonable interpretations, the construction which affords

coverage will be adopted. The policy of strict construction

against the insurer is especially strong when the court is dealing

with exceptions and words of limitation." Blaylock v. American

Guarantee Bank Liability Insurance Co., 632 S.W.2d 719, 721

(Tex.1982) (citations omitted). This rule assumes, of course, that

the language of the policy requires interpretation; it is an

equally well-settled rule of insurance law that terms in the

contract that are unambiguous must be given their plain meaning.

Sekel v. Aetna Life Insurance Co., 704 F.2d 1335, 1338 (5th

Cir.1983). The provision here requires not that the incidental

contract sought to be covered relate to Lafarge, but that it

"relat[e] to the conduct of the named insured's business." Lafarge

has failed to show that the alleged guaranty related to the conduct

of Lafarge's business. That it related to the conduct of the

business of a Lafarge subsidiary does not of itself suffice.

Anchor Wate was not a named insured in the policy, and Texas law

generally recognizes the separate existence of parent and

subsidiary corporations.

Moreover, even if we thought the language of the policy in

some measure ambiguous, we are required to adopt Lafarge's

interpretation of that language only if it is reasonable. We do

not think Lafarge's suggested interpretation meets this standard

because it would in effect read this part of the incidental

14
contract definition out of the policy altogether. See Ideal Mutual

Insurance Co. v. Last Days Evangelical Association, 783 F.2d 1234,

1238 (5th Cir.1986) (an interpretation is not reasonable if it

would strip the policy language of meaning). Under Lafarge's

suggested interpretation, any contract that may in any way possibly

benefit the named insured relates to the conduct of its business.

Such an interpretation of this definition would render its

"relating to the conduct of the named insured's business" language

essentially meaningless. It would also serve as a practical matter

to include all subsidiaries within the meaning of "the named

insured" for these purposes, although the policy definition of

"named insured" plainly does not include them, but includes only

Lafarge itself. Such constructions are to be avoided. Liberty

Mutual Insurance Co. v. American Employers Insurance Co., 556

S.W.2d 242, 245 (Tex.1977).

We thus conclude that Hartford had no duty to defend with

respect to the surety claim against Lafarge. As this was the only

claim against Lafarge alleged in the original petition, Hartford

could not have breached any duty to Lafarge by refusing to defend

it against that claim:

"[T]he duty to defend is determined by examining the latest,
and only the latest, amended pleadings. A complaint which
does not initially state a cause of action under the policy,
and so does not create a duty to defend, may be amended so as
to give rise to such a duty.... In [this] instance, the
insurer may properly refuse to defend before the amended
complaint is filed." Rhodes, 719 F.2d at 119.

See also Steel Erection Co. v. Travelers Indemnity Co., 392 S.W.2d

713, 715-16 (Tex.Civ.App.—San Antonio 1965, writ ref'd n.r.e.)

15
(insurer liable only for that portion of defense costs incurred

after plaintiff amended petition to state a covered claim). As

discussed above, however, the amended complaint, which included

allegations of Lafarge's own negligence, did trigger a duty to

defend. See Rhodes, 719 F.2d at 119. This duty Hartford

acknowledged, subject to a reservation of its right to deny

coverage for any claims it might determine to be outside the

policy. Such was its prerogative, as it was Lafarge's to refuse

such a conditional tender of defense and proceed on its own. Id.

at 120. In these circumstances, Hartford remains obligated for

that portion of attorneys' fees incurred from the time the duty to

defend arose, i.e., after the amended complaint was tendered to

it.12 See id. On remand, the district court should determine what

portion of defense costs accrued after the date the amended

petition was tendered to Hartford.

B. Failure to cooperate as excusing duty to defend.

Hartford further argues that, if it did have a duty to

defend, as we have determined it did, then Lafarge's failure to

cooperate with Hartford in attempting to determine if coverage

existed excused Hartford from its duty to defend Lafarge. We note

first that, generally, "[c]ooperation clauses are intended to

guarantee to insurers the right to prepare adequately their

defenses on questions of substantive liability." Martin v.

Travelers Indemnity Co., 450 F.2d 542, 553 (5th Cir.1971)

12
As discussed below, Hartford cannot be held liable for
pre-tender defense costs. See Part II, infra.

16
(construing Mississippi law). Thus it is arguable that, with

respect to the issue of coverage (a question of the scope of the

policy), as opposed to the issue of liability (a question of

whether Lafarge or Anchor Wate were ultimately guilty of negligence

or some other culpable act), Hartford may not even invoke the

cooperation clause here.

Nevertheless, even if the cooperation clause may be invoked

with respect to coverage issues, we conclude that the district

court did not err in determining that Lafarge did not breach that

duty. In an effort to show Lafarge's lack of cooperation, Hartford

directs us to a footnote in its cross-motion for summary judgment

of June 13, 1991. The first of the four letters between counsel

for the parties referenced in that footnote was dated February 11,

1991; Hartford filed a declaratory judgment action against Lafarge

in federal court in Virginia on February 12, 1991. Although we

have found no Texas cases directly on point,13 we think it is clear

that, once the insurer sues the insured and contests coverage, the

insurer cannot rely on the cooperation clause to gain access to

information that any other party to any other lawsuit would be

13
This is probably so because cooperation clauses are
generally for the benefit of insurers that undertake their
insureds' defense and thereby align themselves with their
insureds' interests. The case of Allstate Insurance Co. v. Hunt,
469 S.W.2d 151 (Tex.1971), illustrates this point. In Hunt, the
Texas Supreme Court held that the insurer, having consented to
the insured's proceeding with suit and having agreed to be bound
by the outcome of that case, could not withdraw its consent and
proceed on behalf of the uninsured motorist. Id. at 154-55. The
court based its holding on the conflict of interest created by
the insured's prior full cooperation, pursuant to the cooperation
clause, with the insurer's investigation of the case. Id. at
152-53.

17
required to obtain through ordinary discovery methods.

II. Apportionment of Defense Costs

We have concluded that Hartford is liable for a portion

(although a smaller portion than determined by the district court)

of Lafarge's defense costs. Hartford argues that the district

court erred in its determination of Hartford's liability for those

costs. Specifically, Hartford contends that (1) it should not be

held responsible for a percentage of all defense costs, but rather

for only those costs attributable to covered claims, (2) it is not

responsible for costs incurred on behalf of non-insured

co-defendants in the underlying suit, and (3) it is not liable for

defense costs incurred prior to Lafarge's tender of the amended

petition to Hartford.

Hartford first claims that, despite the general rule that an

insurer who has a duty to defend as to one claim must defend as to

all claims, it should have been allowed to apportion defense costs

between covered and non-covered claims. It is true that, when

there is a clear distinction between covered and non-covered

claims, an insurer may apportion defense costs. EEOC v. Southern

Publishing Co., 894 F.2d 785, 791 (5th Cir.1990). However, even

though some of the claims were not covered under the policy,

apportionment of costs would be not be feasible in this case

because the claims all arose from a single accident. See Insurance

Company of North America v. Forty-Eight Insulations, 633 F.2d 1212,

1224 (6th Cir.1980), clarified, 657 F.2d 814 (6th Cir.), cert.

denied, 454 U.S. 1109, 102 S.Ct. 686, 70 L.Ed.2d 650 (1981).

18
 Hartford claims, however, that it should have been allowed

further discovery to support such an apportionment between covered

and non-covered claims. Similarly, Hartford argues that discovery

was wrongfully denied with respect to its claim that it should not

be responsible for defense costs incurred on behalf of the seven

non-insured co-defendants in the underlying litigation. Although

Hartford does not specify how further discovery would assist it in

making the proposed allocation, we take it to be arguing that the

district court should have allowed it to discover Lafarge's

counsels' itemized bills and time records. We will thus examine

these two claims together.

Our review of the record shows the following series of events.

By its order of December 7, 1991, the district court granted

Lafarge's motion for partial summary judgment and ordered the

parties to conduct further discovery on the amount of defense costs

in the underlying litigation. On February 4, 1992, in response to

Hartford's motion for clarification of the December 7 order, the

district court noted that it

"intentionally did not rule on Hartford's argument that it
should not be responsible for the defense costs incurred by
Lafarge's counsel with regard to uninsured corporations. If,
during the damages stage of this litigation, Hartford is able
to convince the Court that specific expenses were incurred by
Lafarge's counsel solely for the defense of uninsured
corporations, the Court may deduct those expenses from the
final total of defense costs."

In an effort to produce such evidence, on March 26, 1992, Hartford

took the deposition of Eugene W. "Chip" Brees (Brees), the attorney

who represented Canada Cement Lafarge and Lafarge Corporation, both

19
Hartford insureds, in the underlying litigation.14 With respect to

each expenditure,15 Brees averred that the same costs would have

been incurred regardless of the participation of non-insured

corporations. In its final motion asking the district court to set

the amount of damages, Lafarge asserted that none of the defense

costs were attributable solely to the defense of non-insureds and

that all the costs would have been incurred had Lafarge been the

only defendant in the underlying suit. Attached affidavits

supported this assertion.

On April 3, 1992, Lafarge moved for the entry of an award in

the case. In its objections to that motion, filed April 23,

Hartford complained that, because of Lafarge's failure to produce

itemized bills, it could not determine whether it was "being asked

to pay for the cost of Lafarge evaluating coverage under other

insurance policies or the costs of negotiating Lafarge's settlement

with Nationwide [another Lafarge insurer]." Hartford did not

argue, however, that it should be allowed to discover the bills in

order to parse covered and non-covered claims in the pipeline

litigation itself, nor did it argue that such discovery was needed

to help it determine what portion of defense costs were

attributable to the defense of non-insureds. In its response to

14
Other attorneys represented other various groups of
defendants in the underlying litigation.
15
Brees was questioned only about expenditures other than
attorneys' fees as such; for example, expert witness fees and
materials preparation costs.

20
Hartford's supplemental response of January 26, 1993,16 Lafarge

stated that it was claiming attorney-client and work product

privileges over the itemized bills and would only produce them for

an in camera inspection by the district court.

Between the date of that response, February 4, 1993, and the

date of the district court's final memorandum and order of January

5, 1994, the issue of production of itemized bills never surfaced

again in the parties' numerous filings before the district court.

So far as the record reveals, Hartford never filed a motion to

compel production of the documents or submit them to an in camera

review. Indeed, it was Hartford that first stepped forward, on

November 8, 1993, and requested the entry of final judgment in this

case.17 During this entire period, Hartford never intimated to the

district court that further discovery was required. The district

court's memorandum and order granting Lafarge's motion for summary

judgment did not address the issue of itemized bills, and although

final judgment was entered on the basis of that memorandum and

order, Hartford never filed a motion to reopen the evidence or

reconsider this issue.

Given these circumstances, we must conclude that Hartford has

waived whatever argument it had that the district court erred in

not requiring Lafarge to produce more detailed billing statements.

16
Hartford had made a general request for discovery of the
itemized bills in this supplemental response.
17
The record contains no formal motion by Hartford
requesting the entry of final judgment. On November 29, 1993,
however, Lafarge made a formal, written motion joining in
Hartford's earlier request for final judgment in the case.

21
Whatever help particularized statements might have provided in

rebutting Lafarge's claims,18 Hartford did not take appropriate

steps to ensure that judgment was not rendered without that

information. Lafarge's evidence was sufficient to establish that

the costs it requested were all attributable to the defense of

Lafarge and would have been incurred regardless of the involvement

of non-insureds in the suit. We must therefore reject Hartford's

claims in these respects.

We agree, however, with Hartford's contention that it should

not be liable for any defense costs incurred prior to the date

Lafarge tendered the amended petition because the "voluntary

payment" provision of the policy precludes liability for such

pre-tender defense costs.19 As noted in the previous section, under

Texas law, the duty to defend does not arise until a petition

alleging a potentially covered claim is tendered to the insurer.

Members Insurance Co. v. Branscum, 803 S.W.2d 462, 466-67

18
We note too that, given that the non-insureds in the case
had their own attorneys, it is unclear how itemized bills would
have assisted Hartford in determining what portion of defense
costs were expended on behalf of non-insureds. To the extent
that the bills would show how Lafarge's attorneys' legal services
were expended, at least, we think it reasonable to assume that
Lafarge's attorneys were billing time on behalf of their client.
19
Lafarge counters that pre-tender defense costs are
recoverable unless Hartford demonstrates that it was actually
prejudiced by the delay in tendering the petition. As Hartford
correctly notes, however, prejudice is only a factor when the
insurer is seeking to avoid all coverage for failure to comply
with the notice provisions of the policy. See Laster v. American
National Fire Insurance Co., 775 F.Supp. 985, 991 (N.D.Tex.1991)
("Proof of prejudice to the insurer as a result of the breach, or
non-compliance, is required in either event for coverage to be
avoided.") (emphasis added), aff'd, 966 F.2d 676 (5th Cir.1992).

22
(Tex.App.—Dallas 1991, no writ). The cases on which the district

court relied to support its determination that pre-tender costs

were recoverable are inapposite.20 The terms of the policy are

unambiguous and therefore must be enforced as written.21 Ranger

Insurance Co. v. Estate of Mijne, 991 F.2d 240, 243 (5th Cir.1993);

see also Northern Insurance Co. of New York v. Allied Mutual

Insurance Co., 955 F.2d 1353, 1360 (9th Cir.) (noting that

"California courts have consistently honored [voluntary payment]

20
In both Municipality of San Juan v. Great American
Insurance Co., 813 F.2d 520, 521-22 (1st Cir.1987), and Solo Cup
Co. v. Federal Insurance Co., 619 F.2d 1178, 1188 (7th Cir.),
cert. denied, 449 U.S. 1033, 101 S.Ct. 608, 66 L.Ed.2d 495
(1980), the courts merely determined that the insureds were
entitled to costs and fees involved in defending the actions;
there is no indication in either decision that the courts were
asked to or did in fact consider whether pre-tender costs were
recoverable. In Burroughs Wellcome Co. v. Commercial Union
Insurance Co., 713 F.Supp. 694 (S.D.N.Y.1989), another case
relied on by the district court, Burroughs Wellcome faced
numerous lawsuits connected to its distribution of DES. The
district court stated that the insurer's duty to defend ran "
"from the time each case or claim is brought ...' " Id. at 697
(emphasis in original). It is not clear that this is intended to
cover pre-tender time. Burroughs Wellcome also is factually
distinguishable from the present case. There, the insured was
facing numerous, repeated lawsuits all based on the distribution
of the same product. That is certainly not the case here. In
any event, to the extent, if any, that Burroughs Wellcome stands
for the proposition that pre-tender defense costs are generally
recoverable under policy provisions such as those here, we
disagree.
21
Lafarge argues that notice was tendered eleven months
before it began to incur costs above the $250,000 policy
deductible. Apart from its bearing on whether Hartford was
prejudiced by the delay in tendering notice, which is not a
factor when the insurer is not arguing that the entire policy was
forfeited by failure of the condition, see note 18, supra, this
fact does not help Lafarge. If any expenses incurred before
tender are not recoverable, they could not be considered towards
satisfaction of the deductible, and Hartford would be entitled to
a reduction in damages assessed against it.

23
provisions, and will not require insurers to pay for voluntarily

incurred pre-tender costs"), cert. denied, --- U.S. ----, 112 S.Ct.

3033, 120 L.Ed.2d 903 (1992).

Accordingly, on remand, the district court should modify the

judgment, reducing Hartford's liability to reflect only those

defense costs incurred after tender of the amended petition. As

Hartford has waived its other arguments respecting the

apportionment of costs, however, no other modification is

necessary.

III. Discovery of the Prior Settlement Agreement

As noted previously, Hartford did not become Lafarge's

insurer until 1987; before that time, Nationwide Casualty

Insurance Company (Nationwide) was Lafarge's primary insurer. In

January 1992, Lafarge and Nationwide settled a number of coverage

disputes related, inter alia, to the underlying litigation in this

case. Hartford sought to compel Lafarge to answer its

interrogatory requesting information on the amount of the

settlement between Nationwide and Lafarge, but Lafarge resisted,

asserting that the settlement agreement contained an express

confidentiality provision that forbade revelation of the terms of

the agreement without prior written consent of all parties.

After a hearing, the district court, on March 5, 1992, ordered

Lafarge to produce the settlement agreement for Hartford's

inspection upon receipt of an acceptable confidentiality agreement

from Hartford. The record contains no evidence of such a

confidentiality agreement ever having been forwarded by Hartford,

24
and Lafarge contends that none was ever received. Given the

express confidentiality provision of the settlement agreement, we

do not think the district court abused its discretion in requiring

Hartford to agree to keep the information confidential.

Hartford argues, however, that although it attempted to

negotiate with Lafarge, it could not produce an acceptable

confidentiality agreement because of the restrictions Lafarge

sought to impose on Hartford's use of the information contained in

the settlement agreement. But, Hartford never brought this to the

district court's attention or filed a subsequent motion or other

request with the district court to obtain the settlement agreement

or fix the terms of any confidentiality restrictions. We must

therefore conclude that it has waived its right to insist on

production of this information.

IV. Apportionment of the Deductible

After determining, pursuant to Porter v. American Optical

Corp., 641 F.2d 1128 (5th Cir.), cert. denied, 454 U.S. 1109, 102

S.Ct. 686, 70 L.Ed.2d 650 (1981), that Hartford was liable only for

its "time on the risk," the district court held that Lafarge's

deductible under the Hartford policy should also be reduced.

Although noting that the language of the policy was unambiguous,

the district court held

"[t]hat Hartford demands a full deductible when it has been
found responsible for only a portion of Lafarge's defense
costs simply does not seem to coincide with either the spirit
behind the insurance contract between the parties, or this
Court's previous Order which attempted to apportion the
defense costs as equitably as possible."

The district court cited Clemtex, Inc. v. Southeastern Fidelity

25
Insurance Co., 807 F.2d 1271 (5th Cir.1987), in support of its

decision to reduce the deductible.

If the deductible clause truly were unambiguous, Texas law

would require that the language be given its plain meaning.

Clemtex, however, clearly supports the district court's decision to

reduce the deductible when the insurer has been held liable for

only a prorated share of defense costs. In Clemtex, the district

court determined that the Forty-Eight Insulations proration rule

should apply and thereby proportionately reduced each of Clemtex's

insurers' liability for costs. We noted that "[e]ach defendant,

however, indemnifies Clemtex, under the Forty-Eight rule of

apportionment, for only part of Clemtex's liability under a

silicosis victim's claim. It follows that each insurer herein has

been demanding a full deductible for a partial claim. The

insurance policies do not clearly so provide." Id. at 1276-77.

The Clemtex Court thus found the policy deductible provisions

ambiguous and remanded to the district court to determine what the

provisions meant. Id. at 1277.

This is exactly the case here. The policy provides that the

deductible will apply to each occurrence; it is at best ambiguous

as to what happens when the insurer is held liable for only part of

a continuous occurrence. The district court therefore did not have

to rely on equitable principles in order to reduce the deductible

obligation; its decision is supported simply as a valid choice of

one of at least two reasonable interpretations of the policy. It

did not err in prorating the deductible.

26
V. Award of Prejudgment Interest

Hartford does not contest the award of prejudgment interest

but does challenge the district court's decision not to apply the

6% interest rate prescribed by Tex.Rev.Civ.Stat.Ann. art. 5069-1.03

for "contracts ascertaining the sum payable." The district court

held that article 5069-1.03 did not apply because the sum payable

under the insurance contract was not ascertainable from the face of

the policy. Hartford argues that there is no such "face of the

document" requirement under Texas law and that, because amounts due

the insured under the terms of the policy require only a

calculation of actual money damages (rather than, for example,

damages for pain and suffering), the contract comes within article

5069-1.03.

We are not persuaded. The very premise of Hartford's argument

is unsound because the claim here was for prejudgment interest on

the amount of attorneys' fees expended in defense of the underlying

litigation, not for damages under the policy. The cases Hartford

cites are factually distinguishable because each involves a claim

for liquidated damages.22 In Axelson, Inc. v. McEvoy-Willis, 7 F.3d

22
See Vesta Insurance Co. v. Amoco Production Co., 986 F.2d
981, 989 (5th Cir.) (plaintiff entitled to prejudgment interest
at 6% statutory rate on amount of loan/advance it made to
defendant), cert. denied, --- U.S. ----, 114 S.Ct. 80, 126
L.Ed.2d 48 (1993); St. Paul Insurance Co. v. Rakkar, 838 S.W.2d
622, 631 (Tex.App.—Dallas 1992, writ denied) (when insured's
claim was for total loss by fire, claim was liquidated demand for
full amount of the policy, and contract was for an ascertainable
sum payable); see also Perry Roofing Go v. Olcott, 744 S.W.2d
929, 931 (Tex.1988) (stating that prejudgment interest may be
awarded on equitable principles "for unascertainable or
unliquidated contractual damages") (emphasis added).

27
1230 (5th Cir.1993), this Court held that "[t]he issue, then, is

whether the contract unambiguously establishes the amount owed. It

does not.... The court had to determine that amount, employing

general legal concepts. This contract is not within the

contemplation of article [5069-]1.03." Id. at 1234. As much can

be said of the contract here. The district court did not err in

setting the rate of prejudgment interest.

VI. Award of Attorneys' Fees in the Present Action

Lafarge also sought recovery of its attorneys' fees expended

in pursuing the instant litigation against Hartford for breach of

the insurance contract. Under Texas law, "[a] person may recover

reasonable attorney's fees from an individual or a corporation, in

addition to the amount of a valid claim and costs, if the claim is

for ... an oral or written contract." Tex.Civ.Prac. & Rem.Code §

38.001(8). However, "[section 38.001] does not apply to a contract

issued by an insurer that is subject to the provisions of ...

Article 21.21, Insurance Code ..." Tex.Civ.Prac. & Rem.Code §

38.006(4). The key question, then, is what it means to be "subject

to" article 21.21 of the Texas Insurance Code. Hartford claims

that any entity that could potentially face liability under article

21.21 is exempt from an award of attorneys' fees. Lafarge responds

that an insurer is only subject to article 21.21 if it has been

successfully sued under that article; because Lafarge's Texas

Insurance Code claims were dismissed on summary judgment, Lafarge

argues, Hartford was not subject to article 21.21 and Lafarge

28
should be allowed to recover its attorneys' fees.23

After an extensive discussion of the somewhat conflicted

interpretations of Texas law on this subject, the district court

determined that Lafarge was entitled to its reasonable attorneys'

fees. In reaching this conclusion, the district court determined

that it was bound to follow the opinion of the highest Texas court

that has spoken on the matter. It therefore looked to the Texas

Supreme Court's decision in Barnett v. Aetna Life Insurance Co.,

723 S.W.2d 663 (Tex.1987), and determined that the court, by

reference to lower court decisions, at least implicitly had adopted

an interpretation allowing an award of attorneys' fees in a breach

of duty to defend suit. See id. at 667. In so doing, however, the

district court determined that this Court's decision in Bituminous

Casualty Corp. v. Vacuum Tanks, Inc., 975 F.2d 1130 (5th Cir.1992),

incorrectly interpreted Texas law.

In Bituminous Casualty, we recognized that the Texas appellate

courts had allowed parties to recover attorneys' fees in insurance

contract cases both before and after the Texas Supreme Court's

decision in Dairyland County Mutual Insurance Co. of Texas v.

Childress, 650 S.W.2d 770 (Tex.1983). Bituminous Casualty, 975

F.2d at 1133 & n. 4. Nevertheless, we noted that Dairyland itself

precluded an award of attorneys' fees in these circumstances:

"Art. 2226 [the predecessor to section 38.006] does not apply to

23
Lafarge argues on cross-appeal that the Texas Insurance
Code claims were erroneously dismissed on summary judgment. It
acknowledges that, if this Court were to reverse the summary
judgment as to those claims, section 38.006(4) would operate to
bar a double recovery of attorneys' fees.

29
contracts of certain insurors who are identified in those sections

of the Insurance Code enumerated in Art. 2226." Id. at 1133

(quoting Dairyland, 650 S.W.2d at 775) (footnote and internal

quotation marks omitted). We therefore concluded that "[t]his

language implies that an insurer who falls within the provisions of

section 38.006 is exempt from the payment of attorney's fees and

that only those insurers who do not qualify for the exemption are

subject to the payment of attorney's fees." Id.

We recognize that, after Dairyland, the Texas Supreme Court

subsequently allowed an insured to recover attorneys' fees in a

breach of contract action. Barnett, 723 S.W.2d at 667. However,

it does not appear from that opinion that the insurer ever argued

that section 38.006 precluded an award of such fees against it;

indeed, the parties had previously stipulated to a reasonable fee

for prosecuting the breach of contract action. Id. It is

therefore not clear that Barnett can be construed as implicitly

overruling Dairyland's interpretation of section 38.006. We

acknowledge too, as we did in Bituminous Casualty itself, that

despite Dairyland and our interpretation of it in Bituminous

Casualty, Texas appellate courts continue to award attorneys' fees

to insureds who successfully prosecute breach of contract suits

against their insurers. Indeed, decisions of this Court, both

before and after Bituminous Casualty, have assumed that awards of

attorneys' fees to successful litigants are appropriate in these

circumstances. See Gulf Chemical & Metallurgical Corp. v.

Association Metals & Minerals Corp., 1 F.3d 365, 373 (5th

30
Cir.1993); Enserch Corp. v. Shand Morahan & Co., 952 F.2d 1485,

1500-01 (5th Cir.1992).

However, it is well-settled in this Circuit that "one panel

may not overrule the decision, right or wrong, of a prior panel, in

the absence of an en banc reconsideration or superseding decision

of the Supreme Court." Bertram v. Freeport McMoran, Inc., 35 F.3d

1008, 1016-17 (5th Cir.1994) (citation and internal quotation marks

omitted). "Moreover, a prior panel decision should be followed by

other panels without regard to any alleged existing confusion in

state law, absent a subsequent state court decision or statutory

amendment which makes this Court's [prior] decision clearly wrong."

Broussard v. Southern Pacific Transportation Co., 665 F.2d 1387,

1389 (5th Cir.1982) (en banc) (citation and internal quotation

marks omitted; emphasis added). Thus, although numerous Texas

appellate court decisions have assumed that attorneys' fees are

recoverable in cases such as this,24 the parties have not cited any

post-Bituminous Casualty case from a Texas court, and we have found

none, that directly confronts the issue we clearly resolved in

Bituminous Casualty.

In these circumstances, we must follow the holding of

Bituminous Casualty. The award of attorneys' fees to Lafarge for

the prosecution of this suit is reversed.

VII. Lafarge's Cross-Appeal

Lafarge raises two issues on cross-appeal. First, Lafarge

24
Likewise, our pre-Bituminous Casualty decision in Enserch
merely assumed that attorneys' fees were recoverable but did not
further discuss the issue.

31
argues that the district court erred in prorating Hartford's

liability for defense costs and that a recent Texas Supreme Court

case specifically shows that Texas law does not permit such

"horizontal stacking" of policy coverages. The record contains no

evidence that Lafarge ever objected to the proration of defense

costs.25 We therefore find that Lafarge has waived this portion of

its cross-appeal.

Even if error were not waived, however, we would still uphold

the district court's decision here. Lafarge's argument that the

Texas Supreme Court decision in American Physicians Insurance

Exchange v. Garcia, 876 S.W.2d 842 (Tex.1994), prohibits policy

"stacking" is strained. The question addressed in Garcia was

whether an insurer's duty to settle a suit was triggered when the

settlement demand was outside the policy limits. See Stowers

Furniture Co. v. American Indemnity Co., 15 S.W.2d 544, 547-48

(Tex.Comm'n App.1929, holding approved) (duty to defend includes

duty to accept reasonable settlement demands within policy limits).

Although the insurer's policy limit was $500,000, the injured party

never made a settlement demand less than $600,000. Garcia, 876

S.W.2d at 853. Because Garcia involved a suit for a continuing

25
In fact, it seems clear from the district court's order of
February 3, 1992, that Lafarge made no objection to the decision
to prorate defense costs. Considering Lafarge's motion for
reconsideration of its December 7, 1991, order, the district
court stated: "Lafarge argues that, because the Court saw fit to
apportion Hartford's responsibility for defense costs, it should
also apportion the deductible in precisely the same way." The
district court's order does not suggest that Lafarge made any
alternative argument contesting the propriety of apportionment in
the first instance.

32
injury (the prescription of drugs over an approximately two-year

period), the insured argued that the policy limits of his various

insurance policies should be combined (i.e., stacked) to trigger

the insurer's Stowers duty. The court disagreed:

"The consecutive policies, covering distinct policy periods,
could not be "stacked' to multiply coverage for a single claim
involving indivisible injury.... Simply because a "Claim
Occurrence' extends throughout several policy periods does not
raise the per-occurrence indemnity cap established in every
policy. Even the jurisdiction embracing the broadest coverage
trigger rule has held that multiple coverage does not permit
an insured to "stack' the limits of multiple policies that do
not overlap." Id. at 853-54 (footnotes omitted).

At most, then, Garcia held that an insured cannot get more than he

bargained for out of the insurance contract. See id. at 854-55

("[A]t no time during the four [relevant coverage] years did Garcia

carry liability insurance with a per-occurrence limit greater than

$500,000.... he may not claim to benefit from $1.5 million in

coverage by stacking temporally distinct policies."). Indeed, the

court specifically refused to decide when and under what

circumstances any particular policy would be triggered.26 Id. at

853 n. 20.

As the Garcia court recognized, there is apparently no Texas

law on the precise issue that faced the district court in this

case. Id. In Porter v. American Optical Corp., 641 F.2d 1128 (5th

26
Lafarge's contention that, by quoting one portion of the
opinion in Keene Corp. v. Insurance Co. of North America, 667
F.2d 1034 (D.C.Cir.1981), cert. denied, 455 U.S. 1007, 102 S.Ct.
1644, 71 L.Ed.2d 875 (1982), Garcia thereby adopted the further
holding in Keene regarding the appropriate trigger date for any
one policy both mischaracterizes the Texas Supreme Court's
reliance on Keene and disregards the clear language of Garcia 's
footnote 20.

33
Cir.), cert. denied, 454 U.S. 1109, 102 S.Ct. 686, 70 L.Ed.2d 650

(1981), the Fifth Circuit decision on which the district court in

the present case relied, this Court adopted the Forty-Eight

Insulations exposure theory, allowing proration of coverage.27

Porter, 641 F.2d at 1145. Although Lafarge argues that Forty-Eight

Insulations, which interpreted New Jersey and Illinois law, is not

an appropriate paradigm for determining Texas law, the Court in

Porter relied only on the theory of Forty-Eight Insulations; in

determining to apply the exposure rule, it applied general

Louisiana principles of contract interpretation, which are

substantively similar to those applied in Texas.28 Id. We conclude

that the district court did not err in prorating Hartford's

liability under the Porter/Forty-Eight Insulations rule.

Lafarge also challenges the district court's grant of summary

judgment to Hartford as to Lafarge's Texas Insurance Code claims.

Although Lafarge characterizes the district court's action as sua

sponte, Hartford moved for summary judgment on these claims, and

Lafarge responded to that motion. Moreover, although Lafarge

27
In Clemtex, this Court upheld the district court's
determination, apparently without citation, that Texas would
adopt the Porter/Forty-Eight Insulations exposure theory, but
only because the parties had not challenged that determination.
807 F.2d at 1274-75.
28
Under the policy at issue in Porter, the term "
"[o]ccurrence' [was] defined in each policy to mean an accident
or event or a continuous or repeated exposure to conditions which
causes or results in bodily injury." Porter, 641 F.2d at 1145.
Given this language, which is very similar to that at issue here,
the Court determined that the plain meaning of the policy was
that the policy was triggered when any part of the continuing
injury accumulated during the period of coverage (i.e.,
"occurred"). Id.

34
argues that it was entitled to further discovery because material

issues of fact remained as to Hartford's state of mind, we do not

think the district court erred in determining that enough discovery

had occurred to justify summary judgment.

In addition, Lafarge argues that the district court

impermissibly determined disputed issues of fact by finding that

Hartford's actions in processing Lafarge's claims to a defense in

the underlying suit were reasonable (albeit ultimately mistaken).

Lafarge miscomprehends the nature of the reasonableness

determination. "While generally a question of fact, reasonableness

becomes a question of law if the facts are undisputed."

Continental Savings, 762 F.2d at 1243. It does not appear that

there was any dispute as to the amount of time it took Hartford to

investigate and respond to Lafarge's claims. Also, as Lafarge has

stressed elsewhere in this appeal, the scope of the duty to defend

is determined by reference to the pleadings and the policy, both of

which were available to the district court. The district court

therefore was clearly in a position to determine, as a matter of

law, whether Hartford acted reasonably. It did not err.

Conclusion

For these reasons, we conclude that Hartford's duty to defend

did not arise until tender of the second amended petition, and we

therefore reverse the district court's determination to the

contrary. We also reverse the award of pre-tender defense costs

and the award of Lafarge's attorneys' fees for the prosecution of

the breach of contract suit. We affirm in all other respects.

35
This cause is remanded to the district court with instructions to

enter a judgment consistent with this opinion.

AFFIRMED in part; REVERSED in part; and REMANDED

36