Certain Underwriters at Lloyd's of London v. Sterling Custom Homes, Inc.
705 F. App'x 259
| 5th Cir. | 2017Background
- This appeal concerns financial responsibility for fire losses at a Texas construction site; the general contractor’s insurer paid Sterling Homes and obtained a state-court judgment against Espinoza’s painting company.
- Espinoza procured a Lloyd’s CGL policy with an additional insured endorsement naming Sterling Homes as an additional insured under certain conditions.
- After a March 2015 fire, Great American paid Sterling Homes about $1.28 million for builder’s risk losses and, subrogated, sued Espinoza in state court.
- The Syndicate filed a federal declaratory judgment action seeking to (i) enforce a cross-suits exclusion, (ii) deny a defense duty, and (iii) cap coverage at $100,000.
- The district court granted summary judgment concluding Lloyd’s policy offered no coverage and no defense; the appellate record later included a state-court partial summary judgment against Espinoza and related damages.
- The court holds that the district court erred by interpreting the Lloyd’s policy; it reverses, vacates, and remands for further proceedings consistent with its opinion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the cross-suits exclusion bar coverage for Sterling Homes' state suit against Espinoza | Syndicate argues exclusion bars coverage between insureds. | Sterling Homes argues exclusion is ambiguous and not applicable to this dispute. | Cross-suits exclusion does not apply. |
| Is Sterling Homes an insured under the Lloyd’s policy for the state-court litigation | Endorsement extends blanket coverage to additional insureds under written contracts. | Endorsement limits coverage to liability arising from Espinoza's ongoing operations for Sterling Homes. | Sterling Homes was not an insured for that litigation; no coverage. |
| How should the cross-suits exclusion be interpreted in light of its plain text | Textually, 'any insured' could be read to include all insureds, including additional insureds. | Terms have a definite meaning; it does not render other provisions meaningless. | Plain meaning controls; 'any insured' means any insured entity, regardless of how insured. |
| Do policy provisions collectively sustain a defense duty or coverage | Cross-suits exclusion plus any insured status would preclude coverage. | Endorsement and subcontract terms should be read holistically to permit coverage where applicable. | Not addressed as a separate holding beyond the above conclusions; remand for further proceedings. |
Key Cases Cited
- Tesoro Ref. & Mktg. Co., L.L.C. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 833 F.3d 470 (5th Cir. 2016) (interpretation of insurance contracts; de novo review)
- Primo v. Shelby, 512 S.W.3d 893, 512 S.W.3d 893 (Tex. 2017) (plain meaning; antagonistic interpretations; no rewriting)
- Schaefer, American Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154 (Tex. 2003) (interpretation of insurance contracts; ambiguity doctrine)
- RSUI Indem. Co. v. Lynd Co., 466 S.W.3d 113 (Tex. 2015) (ambiguity; insured-favorable interpretation)
- Twin City Fire Ins. Co. v. Ohio Cas. Ins. Co., 480 F.3d 1254 (11th Cir. 2007) (cross-suits exclusion context; broader vs. narrower readings)