United States District Court,

D. Idaho.

NORD EXCAVATING INC., Plaintiff,

v.

NORTHLAND INSURANCE COMPANY, Defendant.

No. CV08-450-E-EJL.

 

March 29, 2010.

 

MEMORANDUM ORDER

 

EDWARD J. LODGE, District Judge.

 

Pending before the Court in the above-entitled matter are Defendant Northland Insurance Company’s (“Northland”) motion for summary judgment (Docket No. 12) and related motions to strike filed by Northland and Plaintiff Nord Excavating, Inc. (“Nord’). Having fully reviewed the record, the Court finds that the facts and legal arguments are adequately presented in the briefs and record. Accordingly, in the interest of avoiding further delay, and because the Court conclusively finds that the decisional process would not be significantly aided by oral argument, this matter shall be decided on the record before this Court without oral argument.

 

Factual Background

 

Plaintiff Nord Excavating Inc. (“Nord”) filed a Complaint in state court alleging breach of contract and bad faith against their insurance company, Northland, for Northland’s alleged failure to cover the loss on a certain 1993 Dresser 256 Dozer (“dozer”). Plaintiff alleges the dozer was damaged due to vandalism via sand and dirt in the oil and Northland claims their investigation does not support vandalism as the cause for the failure of the dozer was mechanical failure that is excluded under the insurance policy. Northland removed the matter to federal court and has now moved for summary judgment.

 

It is undisputed that Northland issued Commercial Inland Marine Policy No. CP497881-06 (the “Policy”) to Nord for a one year term expiring on November 1, 2007.

 

The Policy provided coverage for contractors equipment subject to certain exclusions. The dozer at issue was covered under the Policy. The exception to coverage Northland claims prevents coverage states:

 

We will not pay for a ‘loss’ caused by or resulting from any of the following: …

 

Wear and tear, any quality in the property that causes it to damage or destroy itself, hidden or latent defect, gradual deterioration, depreciation, mechanical breakdown, insects, vermin, rodents corrosion, rust dampness, cold or heat unless ‘loss’ by fire, lightening, explosion of collision results….

 

On January 29, 2007, Nord submitted a “Property Loss Notice” claiming the loss to the dozer was attributable to an act of vandalism and indicated the date of the loss was November 20, 2006. Nord alleged someone had tampered with the dozer’s engine by placing rocks and debris in the valve covers which caused the engine to fail.

 

Upon receipt of the claim, Northland hired Intermountain Claims, Inc. (“Intermountain Claims”) to investigate the claim. Intermountain Claims conducted an inspection of the dozer and met with a mechanic who inspected the dozer, obtained statements from Nord representatives and collected an oil sample from the dozer. Intermountain Claims issued a report concluding the dozer’s engine failure was from a mechanical failure when anti-freeze washed the engine oil off the engine bearings and it was not a result of vandalism.

 

On March 1, 2007, Pioneer Equipment conducted another inspection of the dozer engine and noted an excessive amount of bearing material in the oil pan, rod bearing gaulded to the crankshaft, a deeply grooved crankshaft, and an excessively flaking bearing. Pioneer found the presence of antifreeze in the oil as well as excessive bearing wear, but did not find any rocks in the oil pan. On March 15, 2007, Horizon Fluid evaluated the oil sample and determined excessive bearing wear, severe levels of coolant indicators, severe levels of bearing material, and high metal levels indicative of crankshaft/camshaft wear. Based on these reports, Northland denied coverage for the failure of the dozer’s engine.

 

On January 10, 2008, Nord reported the alleged vandalism to the Bonneville county Sheriff’s Department. No witnesses or suspects were found concerning the vandalism report.

 

In response to the insurance company’s denial of the claim, Nord had the dozer inspected. Nord first had Mr. Don Ker (“Ker”) inspect the engine seven months after the dozer’s engine failed. Ker determined the oil pan contain an excessive amount of dirt stuck to the bottom and sides along with bearing material from the failed bearings. Ker determined the reason for the engine failure was that someone placed dirt and rocks in the engine.

 

Nord asked Mr. John Telford (“Telford”) to inspect the engine when he was replacing the engine in the summer of 2008. Telford noted extreme wear on the camshaft and gears and noted an excessive amount of sandy dirt inside many parts of the engine. He found sandy dirt in the oil pump which he believes would limit the oil flow. Telford opines the limited oil flow due to the dirt would have been a key factor in the engine failure. Nord maintains the damage was due to vandalism and should be covered under the Policy.

 

Procedural Background

 

In opposition to Defendant’s motion for summary judgment, Nord filed the affidavits of Telford and Ker. Defendant moves to strike the affidavits of Telford and Ker claiming they do not comply with the requirements for an expert’s affidavit. Plaintiff sought leave to file supplemental affidavits for Telford and Ker to cure the alleged defects in their expert’s opinions since the witnesses’ depositions have now been taken by Defendant. The Court granted Plaintiff’s request to file supplemental affidavits on September 30, 2009 (Docket No. 31). Prior to Plaintiff filing supplemental affidavits, Defendant filed a motion in limine seeking to exclude the testimony of Ker and Telford as well as the oil pan sample contained in a soda bottle. Docket No. 32. On October 14, 2009, Plaintiff’s counsel filed an affidavit in opposition to Defendant’s motion for summary judgment and included as exhibits the deposition testimony of Ker and Telford. Docket No. 36. Defendant renewed its motions to strike the affidavits of Telford and Ker. Docket No. 38.

 

When the Court granted Plaintiff leave to file supplemental affidavits, the Court expected counsel to file supplemental affidavits of Ker and Telford, instead Plaintiff filed the complete deposition transcripts of Ker and Telford forcing the Court to wade through the testimony to determine any relevant information. This presentation of Ker and Telford’s opinions is not in a very helpful format to the Court and this practice should be avoided in the future.

 

Motions to Strike

 

The crux of the motions to strike and the motion in limine is Defendant’s position that Ker and Telford cannot provide expert testimony in this case. Plaintiff maintains that Ker and Telford can provide lay testimony about what they actually observed when working on the engine in question and expert testimony as to their opinions as to the cause of the engine failure. Plaintiff argues the testimony should be admissible and the credibility of Ker and Telford’s testimony should be determined by the jury.

 

The Court finds that Ker and Telford’s testimony is admissible as expert testimony under Fed.R.Evid. 702 as the testimony is based on “technical or other specialized knowledge and will assist the trier of fact to understand the evidence or determine a fact in issue.” The rule specifically provides a person can be qualified as an expert based on experience or training. Expert qualifications are not limited to those learned from schooling, and extensive, hands-on experience can provide expert qualification. Both Ker and Telford have years of experience in working on large machinery. Further, the testimony of these witnesses will be subject to cross examination to allow counsel to compare the qualifications of their expert against the other experts.

 

While it is true Plaintiff’s counsel has not provided the type of expert disclosure normally provided in discovery, now that Ker and Telford have been deposed, any deficiencies in the expert reports provided arguably has been cured. The fact that Plaintiff’s witnesses did not consider the investigative reports of Defendant’s experts is also a topic that can be addressed in cross-examination, but the fact remains that Plaintiff’s experts maintain the engine failure was caused sand and dirt in the oil.

 

The Court agrees with Plaintiff that proponents of expert testimony do not have to demonstrate for purposes of summary judgment or trial that their expert’s assessments are correct. Parkinson v. Guidant Corp., 315 F.2d 754, 758 (W.D.Pa.2004). Based on their experience Plaintiff’s expert’s have formed opinions regarding the engine failure and there is a basis for their opinion. Defendant’s experts will be allowed to discuss the theories of Plaintiff’s experts and reach their own conclusions as to whether or not such opinions should be given more or less credibility. Bergen v. F/V St. Patrick, 816 F.2d 1345, 1352, n. 5 (9th Cir.1989).

 

Moreover, Defendants can attack the chain of custody of the engine and the oil from the date of the failure until the date of the Ker and Telford’s examinations, but the mere passage of time is not a proper basis to exclude the testimony of Ker and Telford who have years of experience in working on large machinery engines. The motions to strike the testimony of Ker and Telford as well as the motion in limine to exclude their testimony should be denied.

 

Motion to Strike Portions of Defendant’s Memorandum

 

Plaintiff seeks to have the Court strike portions of Defendant’s memorandum in support of summary judgment which cite the investigative reports of Intermountain Claims dated April 16, 2007, correspondence from Pioneer Equipment Company dated April 5, 2007, and a Horizon Flue Analysis Report dated March 15, 2007. Plaintiff argues these reports and correspondence are hearsay and cannot be relied upon for purposed of deciding the motion for summary judgment as they are not admissible. The Defendant argues the reports and correspondence should be considered by the Court for purposes of summary judgment as the reports can be admitted into evidence at trial in a variety of ways. The Court agrees with Northland that the reports and correspondence can be considered for purposes of summary judgment.

 

A trial court can only consider admissible evidence in ruling on a motion for summary judgment. Orr v. Bank of Am., 283 F.3d 764, 773 (9th Cir.2002). However, the reports and correspondence in this case may be admissible at trial under certain exceptions, so they can be considered by the Court for purposes of summary judgment. Defendants can easily have the contents of the reports testified to by the persons who prepared such reports. Williams v. Borough of W. Chester, 891 F.2d 458, 465 n. 12 (3rd Cir.1989) (“hearsay evidence produced in an affidavit opposing summary judgment may be considered if the out-of-court declarant could later present that evidence through direct testimony, i.e., in a form that would be admissible at trial”) (internal quotations omitted). Or the reports and correspondence could be admissible as an exception hearsay as business records of regularly business activity pursuant Fed.R.Evid. 803(6). Therefore, the motion to exclude these exhibits is denied for purposes of the Court’s consideration of the motion for summary judgment.

 

Motion for Summary Judgment

 

1. Standard of Review

 

Motions for summary judgment are governed by Rule 56 of the Federal Rules of Civil Procedure. Rule 56 provides, in pertinent part, that judgment “shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(c).

 

The Supreme Court has made it clear that under Rule 56 summary judgment is mandated if the non-moving party fails to make a showing sufficient to establish the existence of an element which is essential to the non-moving party’s case and upon which the non-moving party will bear the burden of proof at trial. See, Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). If the non-moving party fails to make such a showing on any essential element, “there can be no ‘genuine issue of material fact,’ since a complete failure of proof concerning an essential element of the nonmoving party’s case necessarily renders all other facts immaterial.” Id. at 323.

 

See also, Rule 56(e) which provides, in part:

 

When a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denials of the adverse party’s pleadings, but the adverse party’s response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial. If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party.

 

Moreover, under Rule 56, it is clear that an issue, in order to preclude entry of summary judgment, must be both “material” and “genuine.” An issue is “material” if it affects the outcome of the litigation. An issue, before it may be considered “genuine,” must be established by “sufficient evidence supporting the claimed factual dispute … to require a jury or judge to resolve the parties’ differing versions of the truth at trial.” Hahn v. Sargent, 523 F.2d 461, 464 (1st Cir.1975) (quoting First Nat’l Bank v. Cities Serv. Co. Inc., 391 U.S. 253, 289, 88 S.Ct. 1575, 20 L.Ed.2d 569 (1968)). The Ninth Circuit cases are in accord. See, e.g., British Motor Car Distrib. v. San Francisco Automotive Indus. Welfare Fund, 882 F.2d 371 (9th Cir.1989).

 

According to the Ninth Circuit, in order to withstand a motion for summary judgment, a party

 

(1) must make a showing sufficient to establish a genuine issue of fact with respect to any element for which it bears the burden of proof; (2) must show that there is an issue that may reasonably be resolved in favor of either party; and (3) must come forward with more persuasive evidence than would otherwise be necessary when the factual context makes the non-moving party’s claim implausible.

 

Id. at 374 (citation omitted).

 

Of course, when applying the above standard, the court must view all of the evidence in a light most favorable to the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Hughes v. United States, 953 F.2d 531, 541 (9th Cir.1992).

 

2. Analysis

 

It is undisputed that the insurance policy excludes coverage for mechanical failure, but provides coverage for vandalism of the equipment. This case is a battle of the experts in attempting to determine the cause of the failure of the equipment. Defendant had independent inspections of the equipment after the claim was filed and determined the cause of the failure was wear and tear due to alleged improper maintenance by Plaintiff. Plaintiff had the engine replaced in 2008 and Ker and Telford formed their opinions as to the cause of the failure months after the engine failed and based on oil samples that were also months old. Because the facts are disputed as to the cause of the failure, the Court must deny the motion for summary judgment and set this matter for trial. A jury will have to determine based on the credibility of the witnesses what weight to give each expert’s opinion and to decide by a preponderance of the evidence the cause of the engine failure.

 

Order

 

Being fully advised in the premises, the Court hereby orders that:

 

1. Nord’s Motion to Strike (Docket No. 25) is DENIED.

 

2. Northland’s Renewed Motion to Strike (Docket No. 38) is DENIED.

 

3. Northland’s Motion in Limine (Docket No. 32) is DENIED.

 

4. Northland’s Motion for Summary Judgment (Docket No. 12) is DENIED.

 

5. This matter remains set for trial April 27, 2010 at 9:30 a.m. at the Federal Courthouse in Pocatello, ID.

United States District Court,

S.D. Texas,

Houston Division.

SHELL CHEMICAL L.P., Plaintiff,

v.

DISCOVER PROPERTY & CASUALTY INSURANCE CO., Defendant.

Civil Action No. H-09-2583.

 

March 29, 2010.

 

MEMORANDUM AND ORDER

 

NANCY F. ATLAS, District Judge.

 

This insurance case is before the Court on the Motion for Summary Judgment (“Shell’s Motion”) [Doc. # 33] filed by Plaintiff Shell Chemical L.P. (“Shell”) and the Motion for Summary Judgment (“Discover’s Motion”) [Doc. # 30] filed by Defendant Discover Property & Casualty Insurance Company (“Discover”). Shell seeks a ruling that Discover owes it a duty to defend in two consolidated underlying lawsuits against it. Discover seeks a ruling that it owes no duty to defend. The Motions have been fully briefed. Based on the Court’s review of the record and the application of governing legal authorities, the Court concludes that Discover owes Shell a duty to defend. Consequently, the Court denies Discover’s Motion and grants Shell’s Motion.

 

Discover filed a Response [Doc. # 34] to Shell’s Motion, and Shell filed a Reply [Doc. # 37]. Shell filed a Response [Doc. # 35] to Discover’s Motion, and Discover filed a Reply [Doc. # 36].

 

I. BACKGROUND

 

On July 28, 2005, Mission Petroleum Carriers, Inc. (“Mission”), an interstate motor carrier, was delivering Shell VM & P Naphtha to Valley Solvent Company, Inc. (“Valley Solvent”), one of Shell’s customers. As required under the contract for Mission to deliver the naphtha, Mission added Shell as an additional insured to its liability insurance policies for coverage of $500,000.00. One policy is a Commercial Truckers Policy, No. D007A00027 (the “Texas Truckers Policy”), that covers only Texas-licensed vehicles. Another policy is a Commercial Truckers Policy, No. D007A00028 (“Policy 28”), that is intended to cover vehicles garaged in other states. A third policy is a Commercial General Liability Policy (“CGL Policy”), No. D007L00016.

 

The Texas Truckers Policy is contained in Joint Appendix 4. The CGL Policy is contained in Joint Appendix 5. Policy 28 is contained in Joint Appendix 6.

 

While Mission was unloading the naphtha at Valley Solve nt’s facility in Fort Worth, Texas, an explosion and fire occurred. The explosion and resulting fire caused extensive damage to Valley Solvent’s property and to the adjacent property owned by Chem-Solv Corporation (“Chem-Solv”) and leased to Valley Solvent.

 

Valley Solvent sued Shell in state court in Tarrant County, Texas, alleging that the fire occurred because either (1) a hose began to leak and the resulting vapor was ignited by an unknown source, or (2) the naphtha caused a static charge that caused a spark and ignited the naphtha. Valley Solvent asserts a breach of contract claim against Shell, alleging that Shell failed to develop a material safety data sheet (“MSDS”) that identified the naphtha as capable of creating a static charge and as having a propensity to create an explosive mixture that could create a risk of explosion. Valley Solvent alleges that Shell’s failure to disclose this information constituted a breach of the sale/purchase agreement and proximately caused the damage to Valley Solvent’s facility.

 

Chem-Solv sued Shell and Mission in Tarrant County. Chem-Solv alleges that Shell had a duty to disclose information regarding the naphtha and that its failure to do so constitutes negligence, a marketing defect, and a breach of warranty that proximately caused the damage to Chem-Solv’s facility.

 

The two lawsuits were consolidated. Shell requested that Discover provide a defense and indemnity under each of the three insurance policies that Discover issued to Mission. Discover denied Shell’s request as to all three policies.

 

The parties filed cross-motions for summary judgment and have fully briefed the issues. The Motions are now ripe for decision as to Discover’s duty to defend in the underlying consolidated lawsuit.

 

Under Texas law, indemnity issues are justiciable only after a claim for coverage has been asserted against the insurer and the underlying lawsuit has been concluded by final judgment. See D.R. Horton-Texas, Ltd. v. Markel Int’l Ins. Co., 300 S.W.3d 740, 745 (Tex.2009); Farmers Tex. County Mut. Ins. Co. v. Griffin, 955 S.W.2d 81, 84 (Tex.1997); Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523, 529 (5th Cir.2004). As a result, the indemnity issue is not yet justiciable.

 

II. DUTY TO DEFEND

 

A. Applicable Legal Principles

 

An insurer owes its insured a duty to defend “if a plaintiff’s factual allegations potentially support a covered claim.” Zurich Amer. Ins. Co. v. Nokia, Inc., 268 S.W.3d 487, 490 (Tex.2008) (citing GuideOne Elite Ins. Co. v. Fielder Rd. Baptist Church, 197 S.W.3d 305, 310 (Tex.2006)). In deciding whether an insurer has a duty to defend, the Court must follow the “eight-corners rule” that provides that the duty to defend is determined only by considering the terms of the insurance policy and the pleadings in the underlying lawsuit. Id. at 491. The focus is on the factual allegations in the underlying complaint, not on the legal theories. See id. at 495 (citing Farmers Tex. County Mut. Ins. Co. v. Griffin, 955 S.W.2d 81, 82 (Tex.1997)). The Court is required to “resolve all doubts regarding the duty to defend in favor of the duty” and to “construe the pleadings liberally.” Id. at 491. “If a complaint potentially includes a covered claim, the insurer must defend the entire suit.” Id.

 

If the complaint in the underlying lawsuit clearly alleges only facts that would exclude coverage under the insurance policy, there is no duty to defend. See Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523, 528 (5th Cir.2004) (citing Fidelity & Guar. Ins. Underwriters, Inc. v. McManus, 633 S.W.2d 787, 788 (Tex.1982)). If, however, it is unclear from the complaint in the underlying lawsuit whether the factual allegations fall within the policy’s coverage, the “insurer is obligated to defend if there is, potentially, a case under the complaint within the coverage of the policy.” See Zurich, 268 S.W.3d at 491; Gore Design Completions, Ltd. v. Hartford Fire Ins. Co., 538 F.3d 365, 368 (5th Cir.2008).

 

B. Texas Truckers Policy

 

Under the Texas Truckers Policy, Shell is an additional insured “but only with respect to their legal liability for acts or omissions of [Mission].” See Texas Truckers Policy, Joint Appendix 4, p. 77. Neither plaintiff in the consolidated underlying lawsuit asserts a cause of action against Shell based on Mission’s acts or omissions. Instead, the plaintiffs in the underlying lawsuit assert against Shell claims based only on Shell’s own failure to make necessary disclosures regarding the hazardous nature of the naphtha. The claims against Shell are distinct from the claims by Chem-Solv against Mission for its alleged mishandling of the naphtha. Consequently, it appears from the policy language that the Texas Truckers Policy does not provide a basis to require Discover to provide a defense to Shell.

 

Valley Solvent does not assert any claims against Mission.

 

Shell relies on Evanston Insurance Co. v. Atofina Petrochemicals, Inc., 256 S.W.3d 660 (Tex.2008), and Atofina Petrochemicals, Inc. v. Continental Casualty Co., 185 S.W.3d 440 (Tex.2005), to support its argument that Discover owes a duty to defend under the Texas Truckers Policy. In Evanston, the policy holder (Triple S) was performing maintenance and construction work at Atofina’s refinery when one of the Triple S employees drowned after falling through the corroded roof of one of Atofina’s fuel oil storage tanks. The policy at issue defined the term “insured” to include any additional insured, such as Atofina, “only with respect to operations performed by you [Triple S] or on your behalf ….“ See Evanston, 256 S.W.3d at 664. Because the plaintiff’s injury in Evanston occurred during “operations performed by” the policy holder Triple S, the Texas Supreme Court held that an event occurs “with respect to operations” if there is a causal relationship between the event and the operations. Id. at 666. The Texas Supreme Court noted that, had the parties in Evanston wanted to provide additional insured status only for the additional insured’s vicarious liability for the policy holder’s conduct, “language clearly embodying that intention was available.” Id. The Texas Truckers Policy contains such language “clearly embodying” the intent to provide coverage, and a duty to defend, to Shell as an additional insured only as to an injured party’s claim that Shell is vicariously liable for Mission’s acts or omissions. The Texas Supreme Court’s decision in Evanston provides no support for Shell’s position in this case.

 

In Continental, A & B Builders was hired to erect steel on property woned by Atofina Petrochemicals (“Fina”). A & B had insurance issued by Continental. The policy language provided coverage for an additional insured for its liability arising out of premises owned by A & B or for A & B’s work for or on behalf of the additional insured. The policy language then excluded insurance for an additional insured if the alleged liability was based on the additional insured’s act, error or omission. See Continental, 185 S.W.3d at 444. The Court in Continental held that the policy language excluded only alleged liability based on the additional insured’s “sole negligence,” noting that to construe the policy language to exclude coverage when there are allegations of any negligence on the part of the premises owner (A & B) under the circumstances of that case would render the endorsement coverage “illusory” because a premises owner has no liability for the acts of an independent contractor unless the premises owner exercises control over the contractor’s work. Id. A contract, for insurance or otherwise, is illusory only if the obligations of a party cannot be triggered under any circumstances. See, e.g., In re Palm Harbor Homes, Inc., 195 S.W.3d 672, 677 (Tex.2006). In the case at bar, there clearly are situations in which additional insured coverage could be triggered. For example, Valley Solvent and/or Chem-Solv could have alleged that Shell was vicariously liable for Mission’s negligence because Shell hired Mission to deliver the naphtha. Consequently, the policy language at issue in this case and under the circumstances presented here does not provide coverage to Shell as an additional insured.

 

In Transportation Insurance Co. v. George E. Failing Co., 691 S.W.2d 71, Tex.App.-Austin 1985, writ ref’d n.r.e.), the Texas Court of Appeals considered policy language virtually identical to that contained in the Texas Truckers Policy. In that case, an employee of the policy holder was injured while he was operating a drilling rig truck manufactured by Failing. The employee sued Failing, alleging that his injury was caused by defects in the truck. Failing sought coverage under the policy, arguing that it would have no liability “but for” the alleged negligence of the policy holder’s employee. The Texas Court held that there was no coverage under the policy for Failing because there were no allegations in the underlying lawsuit by the injured employee that Failing was liable because of the “acts or omissions” of the policy holder or its employees. See id. at 72.

 

Based on the clear language of the Texas Truckers Policy, and the decision of the Texas Court of Appeals in Failing, the Court concludes that the Texas Truckers policy does not provide a basis for requiring Discover to provide a defense to Shell in the underlying lawsuit.

 

C. CGL Policy

 

Discover argues that the CGL Policy does not provide a basis for it to have a duty to defend Shell in the underlying lawsuit because (1) there was no “occurrence” as is required for coverage; (2) the self-funded reserve (“SFR”) reduces the amount of coverage for Shell to zero; and (3) Discover has delegated the duty to defend to Mission. Because the policy language and the factual allegations in the underlying lawsuit do not support Discover’s position, the Court concludes that Discover owes Shell a duty to defend under the CGL Policy.

 

Discover also notes correctly that its coverage for Shell is excess coverage. Discover does not assert or present evidence, however, that Shell has other insurance coverage for the underlying lawsuit.

 

“Occurrence”-The CGL Policy provides coverage for property damage that is caused by an occurrence. See CGL Policy, Joint Appendix 5, p. 00121. The CGL Policy defines an “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” See id. at 00134. The plaintiffs in the underlying lawsuit allege that Shell failed to disclose the hazardous nature of the naphtha, which caused an explosion and fire that damaged the plaintiffs’ property. The allegations in the underlying lawsuit potentially state a claim for property damage caused by an “occurrence” as defined in the CGL Policy. The plaintiffs in the state court consolidated lawsuit allege that Shell’s continuous failure to disclose naphtha’s dangerous characteristics created a harmful condition, to which those plaintiffs were continuously exposed, that resulted in the damage to the plaintiffs’ property. As a result, consideration of the eight-corners of the CGL Policy and the complaint in the consolidated underlying lawsuit establishes that there is potential coverage under the policy giving rise to a duty to defend.

 

The Court notes, additionally, that its decision on this issue is consistent with Texas Supreme Court authority holding that a breach of contract may occur for “reasons that we would call ‘accidental.’ ” See Lamar Homes, Inc. v. Mid-Continent Casualty Co., 242 S.W.3d 1, 8 (Tex.2007).

 

SFR-The CGL Policy provides coverage up to $500,000.00 for Shell. The CGL Policy also contains a $500,000.00 “per incident” self-funded retention (“SFR”). The “damages caused in any one ‘incident’ that would otherwise be payable … will be reduced by the self-funded retention ….”  See CGL Policy, at 00138. Discover argues that the full amount of the SFR applies to reduce its coverage for Shell to zero and, therefore, Discover does not owe Shell a duty to defend in the underlying lawsuit.

 

The parties debate whether “would otherwise be payable” refers to the policy limits or to the damages for a covered incident that are not otherwise excluded by policy language. If the term refers to the amount of damages covered and not excluded, then the SFR would reduce the amount of damages and the remaining amount would be subject to the $500,000.00 coverage for Shell. The Court need not decide this issue because, as is discussed in this section, under either interpretation Discover has not shown that the SFR amount applies only to Shell to reduce the $500,000.00 amount of coverage to zero.

 

The SFR, however, is “per incident” and not “per insured.” In this case, Mission and Shell are both defendants in the underlying lawsuit and are both insureds for which the SFR would apply. There is nothing in the CGL Policy to indicate that Discover can elect to apply the entire SFR to Shell and none to Mission. Consequently, if Mission uses even $1.00 of the SFR amount for its own defense, then there would remain coverage for Shell and the existence of the SFR would not eliminate Discover’s duty to defend Shell. As a result, Discover has not shown that the existence of the SFR negates its duty to defend Shell in the underlying lawsuit.

 

Delegation of Duty to Defend-Discover argues that it has delegated to Mission any duty to defend Shell it might have under the CGL Policy. The provision on which Discover relies, however, begins by recognizing Discover’s “right, duty and ultimate authority to investigate, defend or settle any claim or ‘suit’ asking for damages ….“ See CGL Policy at 00139. The CGL Policy then provides that Discover “will delegate” that responsibility to defend to Mission, “subject to the following conditions.” Id. There is no evidence in the record to establish that these conditions have been satisfied and that Discover has actually delegated to Mission its duty to defend Shell. As a result, Discover is not entitled to summary judgment that it has delegated that duty.

 

Additionally, Texas case law supports Shell’s argument that the duty to defend is non-delegable. See Minnesota Life Ins. Co. v. Vasquez, 133 S.W.3d 320, 330 (Tex.App.-Corpus Christi 2004, rev’d on other grounds) (holding that an insurance company has a non-delegable duty to act on claims). Case law from other jurisdictions also supports the holding that an insurer’s duty to defend cannot be delegated. See, e.g., McGrath v. Everest Nat’l Ins. Co., 2009 WL 3080275,(N.D.Ind. Sept.24, 2009) (holding that under the provisions of the insurance policy, the insurer incurred a duty to defend and “that duty was non-delegable”).

 

The Court notes that Discover cites no case law holding that the insurer can delegate to the named insured its duty to defend an additional insured under the policy.

 

Based on the language of the CGL Policy, the record before the Court, and relevant case law from Texas and other jurisdictions, the Court concludes that Discover is not entitled to summary judgment on its argument that it owes Shell no duty to defend because it has delegated that duty to Mission.

 

D. Policy 28

 

Policy 28 provides liability coverage for property damage “resulting from the ownership, maintenance or use of a covered auto .” See Policy 28, Joint Appendix 6, p. 00239 (internal quotations omitted). Discover argues, inter alia, that there is no coverage under Policy 28 because the plaintiffs in the underlying lawsuit do not allege that Shell’s liability results from Shell’s “ownership, maintenance or use of an auto” covered by Policy 28. Discover’s argument on this issue is well-taken. As was discussed more fully in connection with the Texas Truckers Policy, the plaintiffs in the underlying lawsuit assert that Shell is liable for the damage to their property because Shell failed to disclose necessary information regarding the hazardous nature of the naphtha, not because of Shell’s “ownership, maintenance, or use of” a covered vehicle. As a result, there is no duty to defend provided by Policy 28.

 

III. CONCLUSION AND ORDER

 

Resolving all doubts regarding the duty to defend issue in favor of the insured, the Court concludes that the underlying consolidated lawsuit contains factual allegations that-taken as true and construed broadly-potentially state a claim against Shell that is covered under the CGL Policy. Consequently, Discover owes Shell a duty to defend. The indemnity issue is not yet justiciable because the underlying lawsuit remains pending. Accordingly, it is hereby

 

ORDERED that Shell’s Motion for Summary Judgment [Doc. # 33] is GRANTED, and Discover’s Motion for Summary Judgment [Doc. # 30] is DENIED. The ruling is without prejudice as to the duty to indemnify. It is further

 

ORDERED that this case is STAYED AND ADMINISTRATIVELY CLOSED pending final resolution of the underlying consolidated lawsuit, at which time any party may move for reinstatement of this case on the Court’s active docket.