ORDER
On this day came on to be considered Plaintiffs Motion for Partial Summary Judgment (D.E. 19) and Defendant’s Cross-Motion for Summary Judgment (D.E. 20). For the reasons stated here, Plaintiffs Motion for Partial Summary Judgment is DENIED (D.E. 19) and Defendant’s Cross-Motion for Summary Judgment is GRANTED (D.E. 20).
This Court has subject matter jurisdiction over this action pursuant to 28 U.S.C. § 1332(a)(1) because the parties are citizens of different states, and the amount in controversy exceeds $75,000, exclusive of interest and costs.
II. Factual and Procedural Background
This action was filed on July 29, 2010. (D.E. 1.) On February 4, 2011, the parties entered a Revised Joint Stipulation of Facts, Pleadings, and Policies. (D.E. 18.) The following factual and procedural background is derived from that stipulation.
Plaintiff Ewing Construction Company, Inc. (“Ewing” or “Plaintiff’) is the named insured under a package insurance policy, including Commercial General Liability (“CGL”) coverage, issued by Defendant Amerisure Insurance Company (“Amerisure” or “Defendant”), bearing policy number CPP2037436-02 and effective June 1, 2007 to June 1, 2008. The 2007-2008 Policy was renewed for the past three years under policy numbers CPP2037436-03, which was effective June 1, 2008 to June 1, 2009, CPP2037436-04, effective June 1, 2009 to June 1, 2010, and CPP2037436-05, effective June 1, 2010 to June 1, 2011 (collectively, including the 2007-2008 Policy, the “Policies”). (D.E. 18-1-D.E. 18-15.)
On February 25, 2010, Ewing was sued in a lawsuit styled Tuloso-Midway Independent School District v. Liberty Mutual Insurance Company, et al., Cause No. 10-603421, in County Court at Law No. 1 of Nueces County, Texas (the “Underlying Lawsuit”). The plaintiff in the Underlying Lawsuit, Tuloso-Midway Independent School District (“Tuloso-Midway”), seeks damages from Ewing with regard to allegedly deficient construction of a tennis facility in Corpus Christi, Texas pursuant to a contract between Ewing and Tuloso-Midway (the “Contract”).
After the Underlying Lawsuit was filed, Ewing timely tendered Tuloso-Midway’s Original Petition to Amerisure for defense. On March 4, 2010, Amerisure denied that it owed a duty to defend based on the allegations in the Original Petition. Amerisure reiterated its denial of coverage on June 21, 2010. On July 26, 2010, Amerisure denied coverage based on the allegations in the First Amended Original Petition filed in the Underlying Lawsuit. Amerisure continues to deny coverage with respect to the Underlying Lawsuit, in which a Second Amended Original Petition has now been filed.
Due to Amerisure’s denials, Ewing filed this action on July 29, 2010. (D.E. 1.) In its complaint, Ewing seeks declaratory relief that “Amerisure is obligated to provide a defense to Ewing in the Underlying Lawsuit.” (D.E. 1 at 4.) Ewing also states a claim for breach of the insurance contract between the parties and violation of the Texas Prompt Payment of Claims Statute, Tex. Ins.Code § 542.051 et seq. (D.E. 1 at 4-5.) Amerisure filed a counterclaim on August 13, 2010, requesting “a declaration that it owes no duty to defend nor indemnify Ewing from the claims in the Underlying Lawsuit.” (D.E. 7 at 2.) An actual controversy exists between Ewing and Amerisure with respect to their rights and obligations under one or more of the Policies in connection with the Underlying Lawsuit, and this controversy is ripe for adjudication.
Plaintiff filed its Motion for Partial Summary Judgment on February 4, 2011 (D.E. 19), and Defendant filed its Cross-Motion on February 21, 2011 (D.E. 20). The briefing is now fully submitted. (D.E. 22; 29; 30.)
A. Summary Judgment Standard
Under Federal Rule of Civil Procedure 56, summary judgment is appropriate if “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The substantive law identifies which facts are material. See Anderson v. Liberty Lobby, Inc.,
On summary judgment, “[t]he moving party has the burden of proving there is no genuine issue of material fact and that it is entitled to a judgment as a matter of law.” Rivera v. Houston Indep. Sch. Dist.,
Summary judgment is not appropriate unless, viewing the evidence in the light most favorable to the non-moving party, no reasonable jury could return a verdict for that party. Rubinstein v. Adm’rs of the Tulane Educ. Fund,
B. Declaratory Judgment Act, 28 U.S.C. § 2201
Title 28 U.S.C. § 2201(a), the Declaratory Judgment Act, provides, “[i]n a case of actual controversy within its jurisdiction, ... any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.”
The Declaratory Judgment Act does not confer federal jurisdiction; rather, the parties must provide an independent basis for jurisdiction. Comstock Oil & Gas Inc. v. Ala. & Coushatta Indian Tribes of Tex.,
Here, both parties seek declaratory judgment with respect to their rights and obligations under the Policies. (D.E. 1, D.E. 7.)
C. Duty to Defend and Duty to Indemnify
1. Background
As the Texas Supreme Court has explained, “[i]n liability insurance policies generally, an insurer assumes both the duty to indemnify the insured, that is, to pay all covered claims and judgments against an insured, and the duty to defend any lawsuit brought against the insured that alleges and seeks damages for an event potentially covered by the policy, even if groundless, false or fraudulent, subject to the terms of the policy. However, the duty to defend and the duty to indemnify are distinct and separate duties.” D.R. Horton-Texas, Ltd. v. Market Int’l Ins. Co. Ltd.,
To determine whether the insurer owes a duty to defend, a court must apply the “eight corners rule.” Under this rule, “[a]n insurer’s duty to defend is determined solely by the allegations in the pleadings and the language of the insurance policy.” King v. Dallas Fire Ins. Co.,
When the insurer refuses to defend based on a policy exclusion, the insurer bears the burden of showing that the complaint’s allegations trigger the exclusion. See Harken Exploration Co. v. Sphere Drake Ins. PLC,
Defendant here also moves for summary judgment on the duty to indemnify, should
2. Analysis
In analyzing this case, the Court must first determine whether the claims fall within the broad scope of the Policy. If the Court makes this determination, it must then decide whether a Policy exclusion is applicable. Finally, if it decides that a Policy exclusion applies, it must ascertain whether an exception to the Policy exclusion also applies, thus bringing the claim back within coverage.
a. Policy Coverage
The Court first considers whether the allegations covered in the Underlying Lawsuit are covered by the policy. Defendant appears to concede that the Underlying Lawsuit falls within the general coverage of the policy (as it does not respond to Plaintiffs arguments on this issue), but rather argues that certain exclusions preclude coverage. The Court briefly considers the coverage of the policy, and then turns to the exclusions.
The Policy at issue provides in relevant part, “[t]his insurance applies to ... ‘property damage’ only if: (1) The ... ‘property damage’ is caused by an ‘occurrence’ that takes place in the ‘coverage territory,’ [and] (2) The ... ‘property damage’ occurs during the policy period.” (D.E. 18-3 at 8.)
“Property damage” is defined as “(a) Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or (b) Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the ‘occurrence’ that caused it.” (D.E. 18-3 at 21-22; see also Lamar Homes, Inc. v. Mid-Continent Cas. Co.,
“Occurrence” means “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” (D.E. 18-3 at 21.) The Un
Finally, there is no dispute that the allegations in the Underlying Lawsuit relate to conduct occurring during the policy period. The underlying petitions make clear that the damages at issue occurred while the Policy was in effect. (D.E. 19 at 18.)
The Court thus concludes that the allegations in the Underlying Lawsuit are sufficient to come within the coverage of the Policy. The Court now turns to the more contentious issue, the application of certain Policy Exclusions.
b. Contractual Liability Exclusion
Defendant argues that a CGL Policy “is designed to cover fortuitous events that are beyond the insured’s control,” and it does not cover “contractual liability that the insured voluntarily assumes.” (D.E. 20 at 11.) Defendant relies upon certain “Business Risk” exclusions in the Policy that limit coverage for contractual liability, specifically the Contractual Liability Exclusion. (D.E. 20 at 12-13.) Plaintiff argues that the exclusion does not bar coverage, as there is no “assumption” of liability, and in any event, liability in the Underlying Lawsuit is alleged in tort, in addition to contract. (D.E. 22 at 12-22.)
With respect to “business risk” exclusions and CGL policies, the Texas Supreme Court has explained:
Coverage under a commercial general liability insurance policy is for tort liability for physical damages to others and not for contractual liability of the insured for economic loss because the product or work is not that for which the damaged person bargained. Pursuant to this understanding, certain exclusions have been included within the standard commercial general liability policy for the express purpose of excluding coverage for risks relating to the repair or replacement of the insured’s faulty work or products, or defects in the insured’s work or product itself. These “business risk” exclusions, as they are commonly called, are intended to provide coverage for tort liability, not for the contractual liability of the insured for loss which takes place due to the fact that the product or completed work was not that for which the other party had bargained.
Zurich Am. Ins. Co. v. Nokia, Inc.,
The Contractual Liability Exclusion to the Policy provides, in relevant part: This insurance does not apply to:
b. Contractual Liability
“[Bjodily injury” or “property damage” for which thé insured is obligated to pay damages by reasons of the assumption of liability in a contract or agreement. This exclusion does not apply to liability for damages:
(1) That the insured would have in the absence of the contract or agreement; or
(2) Assumed in a contract or agreement that is an “insured contract”
(D.E. 18-3 at 9.) The Texas Supreme Court has explained that such an exclusion “[considered as a whole, ... provide[s] that the policy does not apply to bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement, except for enumerated, specific types of contracts called ‘insured contracts’ and except for instances in which the insured would have liability apart from the contract.” Gilbert Texas Const., L.P,
With respect to the “assumption of liability” part of the exclusion, the Texas Supreme Court in Gilbert explained that the exclusion is not limited to situations where “the insured assumes the liability of another, such as in an indemnity or hold-harmless agreement,” but rather “the exclusion’s language applies without qualification to liability assumed by contract [with two exceptions.]” Id. at 128-29. The court concluded that the contractual liability exclusion “means what it says,” and “applies when the insured assumes liability for bodily injuries or property damages by means of contract, unless an exception to the exclusion brings a claim back into coverage or unless the insured would have liability in the absence of the contract or agreement.” Id. at 132.
In its opinion, the Texas Supreme Court cited several cases around that nation that interpret the exclusion “as we do,” namely not limiting its scope “to only those situations in which the insured has assumed the liability of another.” Id. at 130 & n. 9. For example, in CIM Insurance Corporation v. Midpac Auto Center, Inc., the court confronted a policy that did “not apply to liability assumed under any contract or agreement.”
Here, the eight corners rule requires the Court to look only at the Policy and the allegations in the underlying petition to determine whether there is an assumption of liability. See, e.g., GuideOne Elite Ins. Co. v. Fielder Road Baptist Church,
The pleadings in the Underlying Lawsuit demonstrate that Ewing assumed liability with respect to its own work on the subject matter of the contract, the tennis courts, such that it would be liable for failure to perform under the contract if that work was deficient. The original petition explained that, “[p]rior to the execution of the contract, Plaintiffs Superintendent, Dr. Cornelio Gonzales met with Ewing several times and, on one or more occasions, told them that Plaintiff wanted quality tennis courts that should last at least twenty-five years. Ewing’s representative never demurred and impliedly represented that they would meet that standard.” (D.E. 18-16 at 4.) The original petition states, in its breach of contract claim, that “[t]he construction is not in accordance with the contract plans and specifications,” that Ewing “breached its implied duty of ordinary care,” “breached its implied warranty of good workmanship,” “breached its implied warranty that the tennis courts in question would be of merchantable quality,” “breached its implied warranty that the tennis courts in question would be suitable for their intended purpose,” and “breached its express warranty that it would fully execute the work described in the Contract Documents.” (D.E. 18-16 at 5-6.) The first and second amended petitions make similar claims, alleging that Ewing breached its contract with Tuloso-Midway in the following respects: “(a) [flailing to com
Upon review, the Court concludes that the allegations in the underlying petitions sufficiently demonstrate that Ewing assumed liability for its own construction work pursuant to the parties’ contract. In other words, by entering into the contract with Tuloso-Midway, Ewing is liable if the work it agreed to perform under that contract is defective. This finding is consistent with Gilbert and the case law relied upon therein. See, e.g., TGA Development, Inc.
While Plaintiff relies heavily upon the Texas Supreme Court’s decision in Lamar Homes, going so far as to state that “the instant case is more in line with Lamar Homes ... than Gilbert,” (D.E. 22 at 16) this is not so. As the court in Gilbert recognized, the contractual liability exclusion was not even at issue in Lamar Homes, and rather that case considered “whether property damage to a house that resulted from construction defects could nevertheless come within the general terms of liability coverage because the damage resulted from an occurrence as defined by the CGL policy.”
In light of the above, the Court concludes that the contractual liability exclusion applies in the circumstances of this case.
c. Exception to Contractual Liability Exclusion
Having determined that the contractual liability exclusion is applicable, the
Once again, the Court’s decision is directed by recent precedent. In Century Surety Co. v. Hardscape Construction Specialties, Inc.,
After the subcontractors completed construction, Hillwood sued Hardscape and Elite alleging that faulty design and construction had caused physical and aesthetic damage to the pool and its surroundings. Relevant here, the petition asserted claims for breach of contract as well as negligence and gross negligence. Id. at 265. Hard-scape demanded indemnification from Elite, and Elite forwarded the demand to Century, who did not respond. Century later sued in federal court, seeking a declaratory judgment that it was not obligated to defend or indemnify Elite or Hard-scape. Id.
The Fifth Circuit considered whether the “insured contract” exception to the contractual liability exclusion applied.
To determine the nature of a Texas lawsuit, we must look to the substance of the cause of action and not necessarily the manner in which it was pleaded. Texas courts characterize actions as tort or contract by focusing on the source of liability and the nature of the plaintiffs loss:
... Tort obligations are in general obligations that are imposed by law-apart from and independent of promises made and therefore apart from the manifested intention of the parties-to avoid injury to others. If the defendant’s conduct-such as negligently burning down a house-would give rise to liability independent of the fact that a contract exists between the parties, the plaintiffs claim may also sound in tort. Conversely, if the defendant’s conduct-such as failing to publish an advertisement-would give rise to liability only because it breaches the parties’ agreement, the plaintiff’s claim ordinarily sounds only in contract.
In determining whether the plaintiff may recover on a tort theory, it is also instructive to examine the nature of the plaintiffs loss. When the only loss or damage is to the subject matter of the contract, the plaintiffs action is ordinarily on the contract.
Id. at 267 (internal citations omitted; emphasis added).
Most of these allegations are easily classified as giving rise to contract claims-namely, because the damages occurred only to the subject matter of the Hill-wood-Hardscape contract, and because no liability would arise independently of the contract. Thus, Hillwood made contract claims when it alleged that Elite’s failure to properly design and construct the pools caused cracks in the walls and floor of the pool, aesthetic damage, pool structural damage, and the like. Similarly, the resulting need to identify, diagnose, and correct the de*751 sign and construction defects gave rise only to contract claims.
Id. (emphasis added). With respect to allegations regarding damage to the decking, the court stated that “[t]he decking portion of the Hillwood petition’s allegations sound in contract because the damage occurred only to the subject matter of the Hillwood-Hardscape contract, and because any liability arising from damage to the decking exists only as a result of the contract. A different result might obtain if, for example, Hillwood had alleged that the faulty pool construction damaged its business interests or adjacent property, but that is not the case.” Id. at 270 (citations omitted; emphasis added). The court thus concluded that the contractual liability exclusion operated to exclude the claims arising from the Hill-wood suit, and no exception was applicable. Id.
The district court in David Lewis Builders, Inc. v. Mid-Continent Cas. Co.,
The court applied Hardscape and concluded that the claims in the underlying suit sounded only in contract. The court explained:
the ... negligence theory ... is based directly on obligations assumed by Lewis under its contract with the Blakes, as is clearly shown by the allegations on which the negligence theory is expressly predicated that Lewis owed the Blakes ‘a duty to perform its contract with care, skill, reasonable expedience and faithfulness’ and that Lewis breached its contractual duty to the Blakes by committing the various acts that are alleged in Count V to have been negligence. Moreover, the allegations ... make clear that the only loss or damage suffered by the Blakes was the subject matter of their contract with Lewis— the house that Lewis contracted to build for them. The nature of the Blakes’ loss is that they did not receive from Lewis the house they contracted for.... Thus, by contending that the insurance policy issued by Mid-Continent provides liability insurance coverage for the Blakes’ claim against Lewis, Lewis is, in effect, seeking reimbursement under its liability insurance policy for costs required to complete the proper performance of its construction contract with the Blakes.
Id. at 786-87 (emphasis added).
Applying Hardscape here, Tuloso-Midway alleges in the underlying suit that the tennis courts, the subject matter of the contract between Tuloso-Midway and Ewing, began to crack and show other structural defects soon after construction was completed. The damage alleged is damage to the subject matter of the contract, nothing else. Tuloso-Midway’s original petition states that it wanted “quality tennis courts that should last at least twenty-five years,” that Ewing represented that it could perform the work, and based upon
The recovery sought is also limited to the subject matter of the contract. Specifically, Tuloso-Midway seeks in its original petition: (a) out-of-pocket expenses, (b) loss of use of the tennis courts because of the construction defects and consequent delays, (c) loss of the benefit of the bargain, (d) costs of repairs and remediation or completion resulting from construction or design defects, (e) the difference between the value of the tennis courts in question as promised and contracted for and as actually delivered, (f) the cost of letting another contract and beginning construction anew so as to provide the same quality of courts as those promised and contracted for, and (g) reasonable and necessary engineering, consulting or other expert fees. (D.E. 18-16 at 9.) The first and second amended petitions state the same damages, but delete damages for “loss of the benefit of the bargain.” (D.E. 18-17 at 10; D.E. 18-18 at 8.) TulosoMidway does not claim damages to, nor seek recovery for, any other property on the school grounds not covered by the contract.
This analysis necessarily leads to the conclusion that Tuloso-Midway’s claims against Ewing in the Underlying Lawsuit sound only in contract, not tort, consistent with Hardscape. As such, the Court must conclude that the exception to the contractual liability exclusion, providing for coverage for liability that “the insured would have in the absence of the contract or agreement,” is not applicable. Hardscape,
Thus, because the Court concludes that the contractual liability exclusion is applicable, and no exception to that exclusion brings the claim back within the scope of coverage, Defendant Amerisure has no duty to defend in this case.
d. No Duty to Indemnify
Because Amerisure has no duty to defend, it also has no duty to indemnify for the same reason. As noted above, “the duty to indemnify is justiciable before the insured’s liability is determined in the lia
D. Prompt Payment of Claims Act
As the Court has ruled that Amerisure has no duty to defend or indemnify Ewing in the Underlying Lawsuit, there is no violation of the Prompt Payment of Claims Act, Tex. Ins.Code. § 542.060.
Plaintiffs Prompt Payment of Claims Act cause of action is therefore dismissed.
IV. Conclusion
For the reasons stated above, the Court hereby GRANTS Defendant’s Cross-Motion for Summary Judgment (D.E. 20) and DENIES Plaintiffs Motion for Partial Summary Judgment (D.E. 19). The Court enters the following declaratory judgments:
(1) Defendant Amerisure owes no duty to defend Plaintiff Ewing in the Underlying Lawsuit, styled TulosoMidway Independent School District v. Liberty Mutual Insurance Company, et al., Cause No. 10-603421, in County Court at Law No. 1 of Nueces County, Texas, and for the same reasons, owes no duty to indemnify Ewing from any resulting judgment in the Underlying Lawsuit.
(2) Defendant Amerisure has not breached its insurance contract with Ewing with respect to its denial of a defense for the Underlying Lawsuit.
(3) Defendant Amerisure is not liable under the Prompt Payment of Claims Act.
Notes
. On March 25, 2011, Defendant sought leave to file an amended reply after consultation
. The Court here references the Policy effective from June 1, 2007 to June 1, 2008. (D.E. 18-1 at 1.) As noted above, the policy was renewed each year, and the policy in effect in April 2009 (when the incident occurred) does not differ in relevant part from that in effect from 2007 to 2008. Because the relevant terms, exclusions, and exceptions remain the same in each Policy, and the parties do not contend that the renewed policies in any way change the analysis (aside from a "repair and rework coverage” endorsement present in the 2009-10 and 2010-2011 Policies), the Court cites to the first Policy for ease of reference.
. Plaintiff’s summary judgment motion refers to Exclusion L to the Policies, but states "it is not even clear whether Amerisure contends that Exclusion L bars coverage.” (D.E. 19 at 23.) Indeed, Amerisure stated in its denial letter that its denial “is not based on exclusion 1,” and Amerisure does not reference this Exclusion in its motion for summary judgment. (D.E. 20.) The Court therefore need not discuss Exclusion L.
. In Gilbert, this assumption of liability was express, as the contract stated that the contractor would "repair any damage to ... facilities, including those that are the property of a third party, resulting from failure to comply with the requirements of this contract or failure to exercise reasonable care in performing the work.”
. The Court notes that Gilbert was decided only on December 17, 2010. In the approximately four months since the decision was issued, it appears that no other court has discussed it in any detail. This Court’s reading of Gilbert is in line with what appears to be a quite expansive interpretation of the "assumption of liability” phrase in the contractual liability exclusion.
. In Lamar Homes, the court concluded: “allegation of unintended construction defects may constitute an 'accident' or 'occurrence' under a CGL policy and that allegations of damage to, or loss of use of, the home itself may also constitute ‘property damage' sufficient to trigger the duty to defend under a CGL policy. We further conclude that the prompt-payment statute .... may be applied when an insurer wrongfully refuses to promptly pay a defense benefit owed to the insured.”
. The Court recognizes Ewing's concern that “Amerisure’s interpretation of the Contractual Liability exclusion would essentially wipe out any coverage for a general contractor for ‘property damage' that occurs to the project.” (D.E. 30 at 4 n. 4.) While the Court may not read Gilbert as broadly as Amerisure does, and indeed makes no general findings about its application beyond this case, it does agree with the conclusion that it operates to exclude coverage in the present circumstances and in that sense is quite broad in application.
. The exclusion provided that the insurance did not cover "property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement, but excepted from that exclusion certain contractual obligations to pay another party’s tort liability.”
. Although Plaintiff is correct that the specific exception at issue in Hardscape was the “insured contract” exception, the term "tort liability” in that exception was defined as "liability that would be imposed by law in the absence of any contract or agreement.”
. This concept is commonly referred to as the "economic loss doctrine.” While Plaintiff strongly disputes whether the economic loss doctrine may be applied in the duty to defend context (as opposed to duty to indemnify context) (D.E. 22 at 18-21) the Fifth Circuit’s analysis in Hardscape applied the doctrine in the context of the eight corners rule. Hardscape, 578 F.3d at 266 (“[T]he Hillwood petition triggers the exclusion’s exemption only if it properly alleges a tort cause of action against Hardscape under the ‘eight corners’ rule applied in Texas courts.”). Further, although the Texas Supreme Court in Lamar Homes stated that the economic loss rule "is not a useful tool for determining insurance coverage,”
. The David Lewis court later concluded, however, that the contractual liability exclusion did not apply based upon a decision that preceded Gilbert, and held that the “assumption” clause limited the exclusion to “liability incurred when one promises to indemnify or hold harmless another, and does not refer to the liability that results from breach of contract.”
. This section provides: “If an insurer that is liable for a claim under an insurance policy is not in compliance with this subchapter, the insurer is liable to pay the holder of the policy or the beneficiary making the claim under the policy, in addition to the amount of the claim, interest on the amount of the claim at the rate of 18 percent a year as damages, together with reasonable attorney’s fees.” Tex. Ins. Code § 542.060. This statute was formally codified under 21.55 of the Texas Insurance Code.
. In this regard, the Court must also dismiss Plaintiff's claim for breach of contract (D.E. 1 at 4), as Amerisure has not violated any obligations under the Insurance Policies.