Lyda Swinerton Builders, Inc. v. Okla. Sur. Co.
903 F.3d 435
5th Cir.2018Background
- Lyda Swinerton Builders (LSB) was a general contractor on a College Station, TX project; subcontracted roofing work to A.D. Willis (Willis). Willis altered the subcontract before returning it; LSB did not countersign or object. The subcontract required Willis to indemnify LSB (with some struck language).
- Willis had a CGL policy from Oklahoma Surety Company (OSC) with an endorsement naming LSB as an additional insured "but only with respect to liability directly attributable to [Willis'] performance of [its] work." Willis was identified as a commercial roofing contractor.
- The project owner (ADP) sued LSB in state court for breach of contract, negligence, and related claims alleging material deficiencies (including roof-related defects) and lost use/damage to the building; amended petitions added more detail and referred to subcontractors.
- LSB requested defense and indemnity from OSC (as additional insured) for the state-court suits; OSC denied requests. LSB sued OSC in federal court seeking breach-of-contract, Insurance Code (Chapter 541) violations, and PPCA remedies. Most insurers settled; dispute between LSB and OSC proceeded.
- The district court granted partial summary judgment that OSC owed LSB a duty to defend and breached it, awarded defense costs and PPCA statutory penalties/fees, but after bench trial denied LSB extra-contractual damages under Chapter 541 for lack of an independent injury. Parties cross-appealed.
Issues
| Issue | Plaintiff's Argument (LSB) | Defendant's Argument (OSC) | Held |
|---|---|---|---|
| Whether LSB qualified as an additional insured under OSC policy | Subcontract (even without LSB countersignature) and Willis' indemnity language show Willis agreed to assume tort liability, satisfying the policy's "written insured contract" requirement | Subcontract not a valid written "insured contract" because LSB didn't countersign and Willis struck indemnity language | LSB is an additional insured; subcontract meets policy definition despite lack of countersignature and struck language |
| Whether OSC had a duty to defend LSB (eight‑corners rule) | ADP petitions alleged property damage and subcontractor-caused defects (including roof), which potentially fall within policy coverage for Willis' work | Petitions alleged breach of contract and not property damage; did not expressly name Willis as cause of damage | Under eight‑corners rule, the petitions potentially alleged covered property damage attributable to Willis during the policy period; OSC owed a duty to defend |
| Whether anti-stacking (Garcia) barred LSB's recovery of defense costs because other insurers covered overlapping periods | LSB argued it only sought defense from other insurers after OSC denied defense; applying anti-stacking would reward wrongful denials | OSC argued an indivisible injury extended across policy periods so stacking should be barred | Anti-stacking inapplicable here; no evidence LSB selected CNA for defense before OSC's denial; court affirmed denial of OSC's anti-stacking motion |
| Whether LSB can recover extra-contractual damages under Tex. Ins. Code ch. 541 (independent-injury rule vs entitled-to-benefits) | LSB argued it was deprived of a policy benefit (defense); under Menchaca/Vail, entitled-to-benefits allows recovery of policy benefits as "actual damages" and treble if knowing violation | OSC argued Fifth Circuit precedent required a separate independent injury beyond denied benefits (following Great American), so LSB cannot recover extra-contractual damages absent independent injury | Court reversed district court: Menchaca reaffirmed Vail; an insured entitled to policy benefits may recover those benefits as actual damages under §541, and may get treble if violation was knowing; remanded for further proceedings |
Key Cases Cited
- USAA Texas Lloyds Co. v. Menchaca, 545 S.W.3d 479 (Tex. 2018) (clarifies relationship between entitled‑to‑benefits and independent‑injury rules under Insurance Code)
- American Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842 (Tex. 1994) (anti‑stacking rule for indemnity across consecutive policy periods)
- Vail v. Texas Farm Bureau Mut. Ins. Co., 754 S.W.2d 129 (Tex. 1988) (an insured who is entitled to policy benefits may recover those benefits as actual damages under the Insurance Code)
- Great Am. Ins. Co. v. AFS/IBEX Fin. Servs., Inc., 612 F.3d 800 (5th Cir. 2010) (Fifth Circuit had required independent injury for extra‑contractual recovery; court reexamined in light of Menchaca)
- D.R. Horton‑Texas, Ltd. v. Markel Int'l Ins. Co., 300 S.W.3d 740 (Tex. 2009) (duty to defend depends on whether complaint potentially alleges covered damages)
- Colony Ins. Co. v. Peachtree Constr., Ltd., 647 F.3d 248 (5th Cir. 2011) (application of duty‑to‑defend principles and eight‑corners rule)