Broughton v. Castlepoint National Insurance Co., 656 F. App'x 729

Background

Plaintiffs (buyers of homes in a five‑unit development built by Hogar Builders) sued Castlepoint (insurer of Hogar) after Castlepoint denied Hogar’s coverage claim for construction defects under a commercial general liability policy effective May 16, 2007.
The Policy contains a "Tract Housing" exclusion that disclaims coverage for "bodily injury" or "property damage" arising out of an insured’s operations in any tract housing project that includes construction of five (5) or more residential buildings.
Hogar submitted a claim in January 2009; Castlepoint denied coverage in a July 28, 2009 letter based on the tract housing exclusion. Plaintiffs later obtained an Amended Agreed Final Judgment against Hogar in state court and Fettner was appointed Receiver.
Plaintiffs sued Castlepoint in state court in 2014 asserting extra‑contractual claims (Texas Insurance Code, DTPA, bad faith, misrepresentation) and breach of contract as judgment creditors seeking to collect under the Policy; Castlepoint removed to federal court.
Castlepoint moved for summary judgment arguing (1) Plaintiffs’ extra‑contractual claims were time‑barred, (2) Hogar’s failure to notify Castlepoint of the underlying suit prejudiced coverage, and (3) the tract housing exclusion bars coverage because Hogar built five or more residential buildings.
The district court granted summary judgment dismissing all claims with prejudice: it held extra‑contractual claims were time‑barred and, although the breach claim was timely, the Policy unambiguously excluded coverage because Hogar built five or more units. Plaintiffs appealed only the breach‑of‑contract ruling.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the tract housing exclusion barred coverage	Plaintiffs argued extrinsic evidence (Question 14 of a supplemental questionnaire and deposition testimony of Nannola) creates a fact issue that the exclusion applies only to developments of "more than five" units (i.e., >5), not "five or more"	Castlepoint argued the Policy unambiguously excludes coverage where five or more residential buildings were built; the supplemental questionnaire and testimony are parol evidence not incorporated into the Policy	Court held the Policy unambiguously excludes coverage for five or more units; parol evidence (questionnaire/deposition) is inadmissible to create ambiguity, so summary judgment for Castlepoint affirmed
Whether extrinsic evidence could be used to alter Policy terms	Plaintiffs: extrinsic evidence shows parties’ intent and reliance on questionnaire	Castlepoint: parol evidence cannot create ambiguity; the Policy controls and contains a merger clause	Court held parol evidence inadmissible because the contract is unambiguous; extrinsic evidence cannot create ambiguity
Whether eight‑corners or duty‑to‑defend exception admits extrinsic evidence	Plaintiffs relied on Star‑Tex (narrow exception under eight‑corners) to admit extrinsic evidence	Castlepoint: eight‑corners and duty‑to‑defend rules are inapposite to a breach‑of‑contract coverage dispute	Court held eight‑corners doctrine irrelevant here; dispute is coverage interpretation, not duty to defend
Whether Plaintiffs (as judgment creditors) can assert rights beyond Hogar’s policy	Plaintiffs asserted rights to collect under the Policy as assignees/judgment creditors	Castlepoint: judgment creditors step into insured’s shoes and are bound by Policy terms	Court held Plaintiffs step into Hogar’s shoes and are bound by the Policy; they cannot rely on extrinsic evidence to change coverage

Key Cases Cited

Rogers v. Bromac Title Servs., L.L.C., 755 F.3d 347 (5th Cir.) (standard of review for summary judgment)
Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (U.S.) (definition of genuine dispute of material fact)
Dillon v. Rogers, 596 F.3d 260 (5th Cir.) (construe facts in favor of nonmovant on summary judgment)
Stonewall Ins. Co. v. Modern Expl., Inc., 757 S.W.2d 432 (Tex. App.—Dallas 1988) (judgment creditors step into insured’s shoes)
Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132 (Tex.) (contract interpretation focuses on parties’ written expression)
Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211 (Tex.) (policy definitions control interpretation)
Nat’l Union Fire Ins. Co. of Pittsburgh v. CBI Indus., Inc., 907 S.W.2d 517 (Tex.) (parol evidence admissible only after a contract is found ambiguous)
Sun Oil Co. v. Madeley, 626 S.W.2d 726 (Tex.) (parol evidence defined as extrinsic evidence to a contract)
Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523 (5th Cir.) (application of eight‑corners rule and duty‑to‑defend doctrine)