City of College Station, Texas v. Star Insurance C
735 F.3d 332
5th Cir.2013Background
- WRI sued the City of College Station after the City denied zoning changes WRI claimed were required by earlier land-use plans, alleging equal protection, substantive due process, inverse condemnation (taking), and tortious interference claims.
- Star Insurance Company (SIC) issued the City a municipal liability policy covering ‘‘wrongful acts’’ by city officials but excluding liability "arising out of" eminent domain, condemnation, or inverse condemnation.
- The City demanded defense and indemnity; SIC refused, invoking the inverse-condemnation exclusion. The City settled WRI’s suit and sued SIC for defense costs, indemnity, statutory penalty interest (§ 542.058), and attorney’s fees (§ 38.001).
- The district court granted summary judgment for SIC, holding all of WRI’s claims were derivative of an inverse-condemnation claim and thus excluded; it denied defense, indemnity, and penalty/fee relief.
- The Fifth Circuit reversed: applying Texas’s eight-corners rule, it held the complaint alleged potential liability independent of a regulatory-taking claim (constitutional and tort claims), so SIC had a duty to defend and may have a duty to indemnify; the case was remanded for further proceedings on indemnity, penalties, and fee determinations.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Duty to defend under the policy | Complaint pleaded constitutional and tort claims independent of any taking; those claims trigger coverage | Exclusion for "inverse condemnation" covers the dispute so no duty to defend | Reversed: eight-corners rule applied; complaint potentially pled non-taking liability, so duty to defend existed |
| Scope of the inverse-condemnation exclusion | Exclusion covers only just-compensation/taking claims, not distinct constitutional/tort liability | Exclusion should be read broadly to cover all liability from zoning denials | Held for City: exclusion read narrowly; ambiguities resolved for insured; constitutional and tort claims may be outside exclusion |
| Duty to indemnify (settlement) | Because non-excluded claims could have produced liability, indemnity may be owed based on evidence | All claims arose from inverse condemnation, so indemnity excluded as a matter of law | Remanded: indemnity depends on evidence developed (duty to indemnify distinct from duty to defend) |
| Statutory penalty interest and attorney’s fees | SIC’s failure to defend/indemnify may trigger §542.058 penalties and §38.001 fees | No duty existed, so no penalties or contract fees | Remanded: district court to assess penalties and fees consistent with finding SIC breached duty to defend and possible indemnity liability |
Key Cases Cited
- Nat’l Cas. Co. v. W. World Ins. Co., 669 F.3d 608 (5th Cir. 2012) (discusses eight‑corners duty-to-defend framework)
- Zurich Am. Ins. Co. v. Nokia, Inc., 268 S.W.3d 487 (Tex. 2008) (duty to defend triggered by any potentially covered claim)
- Lingle v. Chevron U.S.A. Inc., 544 U.S. 528 (U.S. 2005) (tests for regulatory takings)
- Monell v. Dep’t of Soc. Servs., 436 U.S. 658 (U.S. 1978) (municipal liability under § 1983 for customs or policies)
- City of Cleburne v. Cleburne Living Ctr., 473 U.S. 432 (U.S. 1985) (equal protection analysis for municipal zoning decisions)
- Green Int’l, Inc. v. Solis, 951 S.W.2d 384 (Tex. 1997) (attorney’s fees under Tex. law tied to prevailing claims)
- Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1 (Tex. 2007) (Texas prompt-payment statute applies to breach of duty to defend)