United States Court of Appeals,

Third Circuit.

Charles SPENCE, Appellant,

v.

The ESAB GROUP, INC.

No. 09-4363.

 

Argued July 15, 2010.

Opinion Filed: Oct. 18, 2010.

 

Before: FUENTES, VANASKIE and WEIS, Circuit Judges.

 

OPINION OF THE COURT

 

VANASKIE, Circuit Judge.

 

This appeal calls upon us to determine whether Pennsylvania law imposes upon a shipper a duty of due care to safely secure the goods the shipper has loaded in a third-party carrier’s tractor-trailer. The District Court, concluding that Pennsylvania law did not impose such a duty, awarded summary judgment in favor of the shipper, The ESAB Group, Inc. (“ESAB”), and against the carrier’s injured driver, appellant Charles Spence. Because we find that, under the circumstances of this case, Pennsylvania law imposed a duty of care on ESAB, we will reverse the District Court’s judgment and remand for further proceedings.

 

I. Facts

 

On May 12, 2005, Spence was injured when his tractor-trailer overturned as he was rounding a turn in Hanover, Pennsylvania. The accident occurred shortly after Spence, an experienced truck driver, picked up a load of cargo from ESAB to transport to Houston, Texas. The cargo-welding supplies manufactured by ESAB-was packaged by ESAB into boxes and cartons, stacked onto pallets, and then stretch wrapped. Spence was on the trailer while ESAB loaded the pallets by forklift onto the trailer. Spence secured the cargo with “load stars” furnished by ESAB. Load stars are small metal cleats that are placed on the floor of the trailer and secure the pallets that are loaded onto them.

 

Spence had transported welding supplies for ESAB-packaged and loaded the same way as on the day of the accident-on approximately five occasions. On the first occasion, Spence complained to ESAB that he did not like that the load was not blocked and braced, referring to a method of securing cargo which would have required nailing wooden boards to the trailer’s floor to completely surround the pallets to safeguard against movement of the cargo during transit. ESAB assured Spence that it never had a problem with any of its loads. Believing that ESAB “knew better” than he about securing ESAB’s product, Spence hauled the load without blocking and bracing. (A.124.)

 

In addition to utilizing the load star securement devices provided by ESAB, Spence also used a device known as a “load lock” to secure the ESAB cargo. A load lock is an expandable pole with rubber on each end that is wedged between the trailer walls behind the last item in a row of pallets. According to Spence, the purpose of a load lock is to prevent the load from shifting backwards towards the rear doors of the trailer. Spence’s employer provided the load lock that he used to secure the ESAB cargo.

 

Although Spence did not encounter any problems during that first haul of ESAB product, on a subsequent trip, when Spence arrived at his destination, he opened the door of the trailer and saw that the pallets had shifted during transit. Spence does not dispute that only his employer-provided load lock was used to secure the load on this prior occasion. With the exception of that particular load, on all of his prior hauls for ESAB, Spence had secured the cargo with both load stars and a load lock. On none of Spence’s hauls for ESAB, including on the day of the accident, was the cargo blocked and braced. Spence’s expert testified that it is the industry practice for shippers, not drivers, to block and brace the cargo.

 

On the day of the accident, because he did not have a load lock with him, Spence secured the cargo only with ESAB’s load stars. After the pallets were loaded onto the trailer, Spence closed, locked, and sealed his trailer doors and signed the bill of lading. Spence then got into the cab of his truck and drove the tractor-trailer away from ESAB’s facility. As Spence rounded a curve a short distance from the ESAB facility, his tractor-trailer overturned, causing Spence serious injuries. Spence claims that the accident occurred because the load shifted laterally.

 

II. Procedural History

 

On March 28, 2007, Spence brought suit against ESAB in the United States District Court for the Middle District of Pennsylvania, asserting claims of negligence, negligence per se, and gross negligence. The claims were based on Spence’s assertion that the accident was a result of ESAB’s failure to secure the cargo it loaded onto the trailer, which, Spence alleged, was a violation of its duty of care to Spence and the proximate cause of his injuries.

 

On June 13, 2007, ESAB filed a motion to dismiss the negligence per se claim, which the District Court granted on February 15, 2008. On September 25, 2008, ESAB moved for summary judgment. On October 20, 2008, the District Court granted Spence’s request for leave to file an amended complaint and stayed consideration of ESAB’s summary judgment motion. On October 27, 2008, Spence filed an amended complaint, which contained five claims: Negligence, Negligent Failure to Warn, Breach of Assumed Duty, Fraudulent/Negligent Misrepresentation, and Gross Negligence.

 

ESAB filed an amended summary judgment motion on February 13, 2009. ESAB argued that, as the shipper, it owed no duty to Spence, the driver. ESAB cited federal regulations, which ESAB argued “squarely” and “exclusively” place the duty to ensure that cargo is adequately secured on the driver, and not the shipper. ESAB also cited United States v. Savage Truck Line, Inc., 209 F.2d 442 (4th Cir.1953), for the common-law rule that the shipper who loads cargo is only liable for defects in loading that are latent and not apparent to the driver. In opposition to ESAB’s motion for summary judgment, Spence argued, citing Kunkle v. Continental Transportation Lines, Inc., 372 Pa. 133, 92 A.2d 690 (1952), that under Pennsylvania law, the shipper, ESAB, owed a duty of care to Spence in both loading and securing the cargo, notwithstanding the fact that Spence admits that under federal regulations he also had a duty to properly secure the load.

 

On October 13, 2009, the District Court granted ESAB’s motion for summary judgment on all five claims of the Amended Complaint. As to Spence’s negligence claim, on which the instant appeal centers, the District Court found that Pennsylvania law did not impose on ESAB a duty of care under the circumstances of this case. In this regard, it found persuasive the Federal Motor Carrier Safety Regulations that impose upon the carrier the obligation to safely secure cargo to prevent shifting during transit, citing 49 C.F.R. § 392.9(a) and (b), as well as 49 C.F.R. § 393.100. As to the Pennsylvania Supreme Court’s holding in Kunkle, the District Court found that it concerned only the shipper’s duty of care in relation to loading the cargo, and was thus not controlling on the question of a shipper’s duty to secure the load. The District Court also questioned Kunkle’s continuing “vitality,” as it was decided before the promulgation of the federal regulations that make the carrier responsible for securing the cargo. Beyond finding Kunkle not to be on point, the District Court concluded that it conflicted with the “prevailing common law duty” announced in Savage that the primary duty to secure cargo rests with the carrier, and the shipper’s duty is to avoid latent defects in the way the cargo is secured. Savage, 209 F.2d at 445. The District Court reasoned that because Spence knew that the load was not blocked and braced, he could not show that ESAB had created a latent hazard. The District Court thus concluded that Spence had failed to demonstrate that ESAB owed him a common law duty to ensure that the welding materials were properly secured, and even if Kunkle imposed a duty that the cargo be properly loaded, Spence failed to demonstrate that ESAB breached such a duty. Accordingly, the District Court granted ESAB’s motion for summary judgment as to Spence’s negligence claims.

 

III. Jurisdiction and Standard of Review

 

The District Court had diversity jurisdiction pursuant to 28 U.S.C. § 1332, and we have jurisdiction over the appeal under 28 U.S.C. § 1291. Our review of a district court’s grant of summary judgment is plenary, and we must apply the same standard the district court was required to apply under Federal Rule of Civil Procedure 56(c). Smith v. Johnson & Johnson, 593 F.3d 280, 284 (3d Cir.2010). Thus, we can affirm only “if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c)(2). A genuine issue of material fact exists if there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In evaluating the evidence, “we must view the facts in the light most favorable to the nonmoving party and draw all inferences in that party’s favor.” Norfolk S. Ry. Co. v. Basell USA Inc., 512 F.3d 86 (3d Cir.2008) (internal quotation marks omitted). Furthermore, because the determination of whether a duty of care exists is a question of law, Kleinknecht v. Gettysburg College, 989 F.2d 1360, 1366 (3d Cir.1993), we have plenary review of the district court’s conclusion that ESAB did not owe Spence a duty of care. See Berrier v. Simplicity Mfg., Inc., 563 F.3d 38, 62 (3d Cir.2009).

 

IV. Discussion

 

As a federal court sitting in diversity, we are required to apply the substantive law of the state whose law governs the action. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). The parties agree that Pennsylvania law governs this dispute.

 

When ascertaining Pennsylvania law, the decisions of the Pennsylvania Supreme Court are the authoritative source. State Farm Mut. Auto. Ins. Co. v. Coviello, 233 F.3d 710, 713 (3d Cir.2000). In the absence of a controlling decision by the Pennsylvania Supreme Court, we must predict how it would rule if faced with the issue. Covington v. Cont’l Gen. Tire, Inc., 381 F.3d 216, 218 (3d Cir.2004). In making such a prediction, “we must look to decisions of state intermediate appellate courts, of federal courts interpreting that state’s law, and of other state supreme courts that have addressed the issue,” as well as to “analogous decisions, considered dicta, scholarly works, and any other reliable data tending convincingly to show how the highest court in the state would decide the issue at hand.” Norfolk S. Ry. Co., 512 F.3d at 92 (internal quotation marks omitted). We must be mindful that “our duty is to apply state law … irrespective of what we may regard as its merits,” Krauss v. Greenbarg, 137 F.2d 569, 571 (3d Cir.1943); we may not impose our own view of what state law should be, McKenna v. Pac. Rail Serv., 32 F.3d 820, 825 (3d Cir.1994), nor “expand state law in ways not foreshadowed by state precedent.” City of Philadelphia v. Beretta U.S.A. Corp., 277 F.3d 415, 421 (3d Cir.2002).

 

“The primary element in any negligence cause of action is that the defendant owes a duty of care to the plaintiff.” Althaus ex rel. Althaus v. Cohen, 562 Pa. 547, 756 A.2d 1166, 1168-69 (2000). As explained by the Pennsylvania Supreme Court:

 

The determination of whether a duty exists in a particular case involves the weighing of several discrete factors which include: (1) the relationship between the parties; (2) the social utility of the actor’s conduct; (3) the nature of the risk imposed and foreseeability of the harm incurred; (4) the consequences of imposing a duty upon the actor; and (5) the overall public interest in the proposed solution.

 

Id.

 

Pennsylvania has adopted a number of provisions of the Restatement (Second) of Torts to inform the consideration of these factors. One such provision is § 323. See Gradel v. Inouye, 491 Pa. 534, 421 A.2d 674, 677 (1980) (“Section 323(a) of the Restatement [ (Second) ] of Torts has been part of the law of Pennsylvania for many years.”). That section provides:

 

One who undertakes, gratuitously or for consideration, to render services to another which he should recognize as necessary for the protection of the other’s person or things, is subject to liability to the other for physical harm resulting from his failure to exercise reasonable care to perform his undertaking, if

 

(a) his failure to exercise such care increases the risk of such harm, or

 

(b) the harm is suffered because of the other’s reliance upon the undertaking.

 

Restatement (Second) of Torts § 323 (1965). In Feld v. Merriam, 506 Pa. 383, 485 A.2d 742 (1984), the court indicated that Pennsylvania’s application of § 323 is consistent with the following comment to that provision:

[T]his Section applies to any undertaking to render services to another which the defendant should recognize as necessary for the protection of the other’s person or things. It applies whether the harm to the other or his things results from the defendant’s negligent conduct in the manner of his performance of the undertaking, or from his failure to exercise reasonable care to complete it or to protect the other when he discontinues it.

 

Id. at 746 (quoting Restatement (Second) of Torts § 323 cmt. a). In Feld, the court noted that these comments are particularly relevant where a party undertakes a task and “possibly fosters a reliance by [the plaintiff] on his efforts.” Id. at 747.

 

Spence’s argument in favor of recognition of a duty of care on the part of the shipper in this case is consistent with Pennsylvania’s application of § 323. In this regard, Spence does not argue that the shipper’s obligation to exercise reasonable care was exclusive. He acknowledges that he had a duty of care insofar as securing the load against lateral movement was concerned. Spence contends, however, that ESAB, as the party who undertook to place the load on his trailer, provided him with securement devices, and assured him that blocking and bracing was unnecessary, also owed a duty of care.

 

Spence relies primarily on a case that is consistent with the principle expressed in § 323, Kunkle v. Continental Transportation Lines, Inc., 372 Pa. 133, 92 A.2d 690 (1952). In that case, Harry R. Kunkle brought suit against Continental Transportation Lines, the shipper for whom Kunkle was transporting cargo when his trailer crashed on a Pennsylvania highway in 1947. Kunkle, 92 A.2d at 690-91. The cargo included a 16,000 pound lithograph machine on the “extreme left” of a trailer on its 6″ side, with its 5′ 5″ width “extending almost to the top of the trailer.” Id. at 691. The rest of the cargo loaded on the trailer, consisting of “bulky, light material,” weighed about 7,500 pounds. Id. The loading was supervised by an employee of the shipper, while Kunkle sat in the cab of his vehicle, “purposely refrain[ing] from taking any part in the loading operation because the loaders were union men and resented interference on the part of an owner-driver.” Id. Before departing with his load, Kunkle noticed that the trailer listed somewhat to the left side, but accepted the assurances of the defendant’s dispatcher that the load was “all right.” Id. at 691-92. While driving the trailer with the loaded cargo, Kunkle attempted to pass a vehicle, and while doing so lost control of the steering, causing the tractor-trailer to “crash into the inevitable telegraph pole along the road.” Id. at 690-91. Kunkle brought suit against the shipper for negligently loading the cargo onto the trailer. Id. at 691. The issue at trial was whether the loading of the trailer or Kunkle’s driving caused the trailer to lose balance. Id. The jury agreed with Kunkle, finding that the accident was caused by the shipper’s negligence in loading, and not Kunkle’s driving. Id. The jury further found that Kunkle was not contributorily negligent in failing to inspect the loading operation. Id.

 

On appeal, the Pennsylvania Supreme Court found that the shipper could be held liable based upon the manner in which it undertook to place the materials on the trailer, explaining:

 

The [shipper]’s employee … was aware, or should have been aware, of the remaining items to be loaded, and it was his responsibility to see that no dangerous condition would be created by what was going aboard finally.

 

Those final items were actually lifted into the trailer by employees of the [shipper] and they should have realized that a proper loading of comparatively light objects would necessitate a redistribution of the cargo in order to effect the proper balance. When they sealed the door of the trailer with 16,000 pounds of a total load of 23,500 pounds concentrated on the left side of the trailer, they were subjecting the plaintiff, who was within the foreseeable orbit of harm, to great danger.

 

Id. at 691-92 (emphasis added).

 

By finding the shipper liable, the court in Kunkle necessarily recognized that the shipper had a duty to perform its undertakings in relation to the cargo with due care. Although Kunkle does not establish a special duty of care rule based on the shipper-carrier relationship, or define a particular standard of care to which a shipper must conform in loading and securing cargo, it nonetheless acknowledges that shippers are not exempt from the general duty the law imposes upon all persons who undertake to perform a particular service not to expose others to risks of injury which are reasonably foreseeable. See R.W. v. Manzek, 585 Pa. 335, 888 A.2d 740, 747 (2005) (“[A] duty arises only when one engages in conduct which foreseeably creates an unreasonable risk of harm to others.”); Kimble v. Mackintosh Hemphill Co., 359 Pa. 461, 59 A.2d 68, 71 (1948) (“Although individuals are not required to guard against every risk they conceive to be possible, they are under a legal duty to prevent hazards which they can forecast as possible.”).

 

Although it was Spence who physically secured the load with the load stars and closed and locked the truck, ESAB nonetheless significantly involved itself in the securing of the load. In other words, ESAB went beyond the task of merely loading the product on the trailer. It was, after all, ESAB that supplied load stars as the securement device. Although ESAB had posted a sign at its loading dock saying that it is the driver’s responsibility to secure the load, Spence provided evidence that the industry practice is for shippers to block and brace the cargo that they load, and that ESAB at one time had supplied material for blocking and bracing. Spence also provided evidence that supports an inference that ESAB assured him that transportation of the product without blocking and bracing was safe. Spence testified that on his first load for ESAB, he complained about the way the trailer was loaded:

 

I told them that I did not like the way that they loaded the trailer. I didn’t like the small pallets. I didn’t like it being down the center of the trailer with no blocking, no bracing, nothing but the stars. I did say something about it, and ESAB assured me that they have never had a problem with any of their loads, so I took it that they knew better than I did and hauled the load.

 

(A.124.)

 

In sum, there was evidence that ESAB selected the appropriate securement device, that Spence complained to ESAB concerning the way the cargo was loaded and secured, that ESAB in response stated that it never had a problem with any of its loads, and that Spence relied upon this assurance in using only load stars to prevent lateral movement of the cargo. We must, of course, credit this evidence as true in determining whether summary judgment was warranted. We view this evidence as sufficient to support a reasonable inference that ESAB undertook to participate in assuring that the load was secured properly. Whether it did undertake to assure the stability of the cargo, and if it did, whether it exercised reasonable care in performing this undertaking, are questions for the jury to decide.

 

Imposing a duty of care on the shipper does not absolve the carrier or its driver of responsibility to assure the stability of the load during transport. As noted above, Spence acknowledges that he, too, owed a duty of care with respect to securing the cargo. All we hold, consistent with Kunkle and § 323 of the Restatement (Second) of Torts, is that the shipper may also owe a duty of care depending upon the role it assumes in connection with loading and securing its cargo. Other courts have reached a similar conclusion. See, e.g., Locicero v. Interpace Corp., 83 Wis.2d 876, 266 N.W.2d 423, 427 (1978) (“We hold that [the state statute] and the federal safety regulations impose a clear statutory duty on the carrier to secure the load safely, but they do not relieve those who breach a common law duty of care from liability for their negligence and their comparative share of the resulting damages.”);   Medeiros v. Whitcraft, 931 F.Supp. 68, 74 (D.Mass.1996) (duty imposed by regulation on the driver did not relieve shipper of liability for any independent negligence found by the jury).

 

Pennsylvania is a comparative fault jurisdiction. Under Pennsylvania law, a plaintiff’s negligence bars recovery only when it is greater than that of the defendant. 42 Pa.C.S.A. § 7102. Because “it is a rare situation where it can be said that the plaintiff is more than 50% negligent as a matter of law,” Gilbert v. Consol. Rail Corp., 154 Pa.Cmwlth. 249, 623 A.2d 873, 876 (1993), the assessment of the relative responsibility for the injuries sustained by Spence is properly left to the jury. See Gilpin v. Langan, 789 F.2d 1034, 1036 (3d Cir.1986) (“The determination that a plaintiff’s negligence amounted to fifty-one percent of the causal conduct and thereby barred recovery, rather than to forty-nine percent, leading only to a reduction of the award, is peculiarly a matter on which reasonable minds may differ.”). Consequently, we find that summary judgment on Spence’s negligence claims was not warranted.

 

This conclusion is not inconsistent with the Fourth Circuit’s holding in Savage, the case upon which the District Court placed principal reliance. According to Savage:

 

The primary duty as to the safe loading of property is … upon the carrier. When the shipper assumes the responsibility of loading, the general rule is that he becomes liable for the defects which are latent and concealed and cannot be discerned by ordinary observation by the agents of the carrier; but if the improper loading is apparent, the carrier will be liable notwithstanding the negligence of the shipper.

 

209 F.2d at 445.

 

Notably, Savage did not hold that the exclusive duty to secure the cargo against movement during transit rests with the carrier. Instead, it recognized that the carrier, the party in the best position to know about the handling characteristics of its vehicles, has the primary obligation to assure that the cargo is loaded in a secure manner. Savage acknowledged that a shipper may have liability when an accident results from movement of goods during transport if the shipper created a non-apparent condition that caused the load to shift.

 

Here, the District Court found that while the latency of a defect is ordinarily a question of fact, there was no dispute in the case that it was apparent to Spence that the cargo was not blocked and braced. The District Court reasoned that because the absence of blocking and bracing was readily apparent, there was no issue of fact concerning the latency of the alleged defect. However, the obviousness of the absence of a particular method of securing a load, does not necessarily compel a conclusion that the risk created by the missing securement device is patent.

 

In Franklin Stainless Corp. v. Marlo Transp. Corp., 748 F.2d 865 (4th Cir.1984), a case applying Savage, a carrier was engaged to transport coils of stainless steel for a shipper. Id. at 866. The shipper loaded the steel coils onto two tractor-trailers, but did not take any measures to secure the cargo. Id. The carrier informed the shipper that he had never hauled steel coils and inquired whether the load was secure. Id. The shipper assured the carrier that it had used the standard loading method and that there would be no trouble with the load. Id. In transit, one of the trucks collided with another vehicle. Id. In a personal injury action brought by the victims of the collision, the jury returned a verdict against the shipper, finding that the improper loading of the truck was a cause of the accident. Id. at 866-67. The shipper sought indemnity or contribution from the carrier based on the carrier’s negligence. Id. at 867. The district court acknowledged that the shipper had been negligent in loading the coils, but under Savage, it found that the defect in loading was open and obvious to the carrier, thus absolving the shipper of liability. Id. The Fourth Circuit disagreed: “[The shipper’s] loading of the heavy steel coils flat on pallets down the center of the trucks without strapping and chocking was, of course, open and obvious to the trucker. It does not follow, however, that the defect in this manner of loading was open and obvious.” Id. at 868. In rejecting the district court’s finding that the defect in loading was open and obvious to the carrier, the Fourth Circuit, in part, relied on the evidence that the shipper assured the driver that the method of loading was proper, and that the jury found that the driver reasonably relied on this assurance. Id. at 868-69. The Fourth Circuit noted that “[t]he jury’s finding that the trucker reasonably relied on [the shipper’s] assurance about the safety of the load is tantamount to a finding that the defect was not open and obvious.” Id. at 869.

 

Franklin is in harmony with § 323 of the Restatement (Second) of Torts. In this regard, Franklin recognized that a shipper’s assurances that cargo has been properly secured may establish an “undertaking” of services to which a duty of care attaches. The Fourth Circuit indicated that the evidence must be such as to establish that the shipper undertook some role in securing the load, finding that this requirement for liability was assured through the following jury charge:

 

Insofar as the negligence of the defendant [shipper] is concerned, you are told that while the primary duty as to the safe loading of goods being shipped to prevent shifting is on the carrier …, nevertheless, if a shipper …, by its acts or statements, undertakes or assumes responsibility for loading as for example by assuring the carrier that a certain method of loading is safe and normal and the carrier or its employees reasonably rely upon such assurance, then it is the duty of the shipper … to exercise ordinary care to see that the loading is done in a safe manner….

 

Franklin, 748 F.2d at 869 n. 3 (emphasis added).

 

It is thus clear that even under the Savage rule summary adjudication of the negligence claims was not warranted. That is, there are issues of material fact as to whether the lack of blocking and bracing was a latent defect. See Grantham v. Nucor Corp., No. 2:07-CV-229, 2008 WL 3925211, at(D.Utah Aug. 20, 2008) (finding genuine issue of material fact existed as to whether defect in loading was latent where driver lacked experience hauling products from shipper’s facility and where shipper’s employee told the driver, in response to driver’s concerns about the load’s safety, that he had been loading trucks for quite a while and that he knew what he was doing); Syngenta Crop Prod., Inc. v. Doyle Brant, Inc., No. 3:06-CV-84-S, 2008 WL 167293, at(W.D.Ky. Jan. 16, 2008) (court could not conclude as a matter of law that truck driver did not rely on shipper’s assurances that the load was secure and therefore an issue of fact existed as to whether the alleged defect in the shipper’s loading of the trailer was apparent); Ebasco Servs., Inc. v. Pac. Intermountain Express Co., 398 F.Supp. 565, 568-69 (S.D.N.Y.1975) (question of whether the excessive height of a shipment presented a patent defect was “not one for resolution by summary judgment,” in part, because evidence that shipper’s employees represented the load to be of proper height raised “material issues of fact bearing on the ultimate issue of allocation of liability between” the shipper and the carrier); Smart v. Am. Welding & Tank Co., 149 N.H. 536, 826 A.2d 570, 575 (2003) (“[W]hether a defect in loading is obvious through ordinary observation or concealed is a question of fact.”). More importantly, as suggested by Franklin, liability may be imposed on the shipper where (a) it provides assurances concerning the manner of loading and securing the cargo, and (b) the driver’s reliance upon such assurances is reasonable. As noted above, there is sufficient evidence on each of these factors to preclude summary judgment.

 

IV. Conclusion

 

Those who undertake the task of loading, securing, and hauling cargo on tractor-trailers have a duty to exercise due care to protect property and persons from the risk of harm. The primary duty to assure that a load does not shift in transit generally rests with the carrier and its driver. Spence does not dispute this general rule. But where there is evidence that a shipper undertook to load and secure the cargo being transported by a third party carrier, the shipper also bears an obligation to exercise reasonable care. The Pennsylvania Supreme Court recognized this principle in Kunkle. Moreover, this principle is consistent with § 323 of the Restatement (Second) of Torts, a provision that has long reflected the common law of Pennsylvania.

 

In this case, there was evidence that the shipper, ESAB, undertook not only to load the cargo, but also to supply the securement devices and to express an assurance that this method of securing the load was adequate. If, as in Franklin, a jury finds that ESAB participated in not only loading, but also securing its welding supplies, then the jury would have to determine whether ESAB exercised due care. Thus, because it undertook the task of furnishing securement devices and assuring a skeptical driver that such devices were adequate, ESAB cannot be absolved of liability at the summary judgment stage. Whether ESAB breached its duty of care and, if so, whether Spence was negligent as well are matters committed to resolution by a jury. Accordingly, we will vacate the District Court’s entry of summary judgment in favor of ESAB on Spence’s general negligence and breach of an assumed duty claims, affirm the entry of summary judgment in favor of ESAB on Spence’s negligent failure to warn and fraudulent/negligent misrepresentation claims, and remand for further proceedings consistent with this decision.

 

Spence explained that on this particular prior occasion, instead of setting the load stars down while ESAB loaded the cargo, he chose to lay down in his tractor’s sleeping berth because he was tired. ESAB requires the individual driver to set the load stars down, and will not put them down in absence.

 

We view the “Assumed Duty” claim as a subpart of Spence’s negligence claim. We also note that there is no separate cause of action under Pennsylvania law for gross negligence. See Hunter v. Squirrel Hill Assocs., L.P., 413 F.Supp.2d 517, 520 n. 2 (E.D.Pa.2005) (“While Pennsylvania courts acknowledge differing standards of care, they do not recognize degrees of negligence as separate causes of action.”); Floyd v. Brown & Williamson Tobacco Corp., 159 F.Supp.2d 823, 828 (E.D.Pa.2001) (dismissing separate claim of gross negligence because under Pennsylvania law “ ‘gross negligence’ refers to a standard of care, rather than to a separate claim”).

 

In pertinent part, 49 C.F.R. § 392.9(a) and (b) provide:

 

(a) General. A driver may not operate a commercial motor vehicle and a motor carrier may not require or permit a driver to operate a commercial motor vehicle unless-

 

(1) The commercial motor vehicle’s cargo is properly distributed and adequately secured as specified in §§ 393.100 through 393.136 of this subchapter.

 

….

 

(b) Drivers of trucks and truck tractors. [T]he driver of a truck or truck tractor must-

 

(1) Assure himself/herself that the provisions of paragraph (a) of this section have been complied with before he/she drives that commercial motor vehicle[.]

 

Subsection (c) of 49 C.F.R. § 393.100 provides that “[c]argo must be contained, immobilized or secured … to prevent shifting upon or within the vehicle to such an extent that the vehicle’s stability or maneuverability is adversely affected.”

 

The District Court also granted summary judgment in favor of ESAB on the negligent failure to warn and fraudulent/negligent misrepresentation claims of the Amended Complaint. Spence has not challenged the summary adjudication of those claims in this appeal. Accordingly, we will affirm the District Court’s summary judgment decision as to those claims. driver’s absence.

United States District Court,

N.D. Texas,

Dallas Division.

CANAL INDEMNITY COMPANY, Plaintiff,

v.

PALMVIEW FAST FREIGHT TRANSPORTATION, INC., et al., Defendants.

Civil Action No. 3:09-CV-0451-D.

 

Nov. 10, 2010.

 

MEMORANDUM OPINION AND ORDER

 

SIDNEY A. FITZWATER, Chief Judge.

 

An insurer moves for summary judgment in this action seeking a declaratory judgment concerning its duties to defend and indemnify arising from a state court lawsuit. Although the insurer relies on two policy exclusions to avoid coverage, the dispositive question is whether a reasonable jury could find that defendants are entitled to recover on theories of waiver and equitable estoppel. The court concludes that a reasonable jury could not find waiver but that it could find the insurer liable to one defendant under a theory of equitable estoppel. The court therefore grants in part and denies in part the insurer’s motion for summary judgment.

 

I

 

Plaintiff Canal Indemnity Company (“Canal”) sues defendants Palmview Fast Freight Transportation, Inc. (“Palmview”), Flavio Salinas (“Salinas”), and Ricardo Vela (“Vela”), seeking a declaratory judgment concerning its duty to defend or indemnify with respect to a state court lawsuit. See Salinas v. Palmview Fast Freight Transp., Inc., No. C-041-08-J (430th Dist. Ct., Hidalgo County, Tex.) (the “Underlying Lawsuit”). In the Underlying Lawsuit, Salinas was awarded damages, to be paid by Vela, for injuries Salinas incurred during the course of employment as a trucker working for Palmview and Vela. Canal had issued a policy of insurance (the “Policy”) to “RICKY VELA d/b/a PALMVIEW FAST FREIGHT” as the named insured. The Policy was amended in 2006 to replace all mention of Vela with the corporate entity, “Palmview Fast Freight Transportation, Inc.” P.App. 66-67.

 

In recounting the factual background, the court summarizes the evidence in the light most favorable to defendants as the summary judgment nonmovants and draws all reasonable inferences in their favor. See, e.g., Owens v. Mercedes-Benz USA, LLC, 541 F.Supp.2d 869, 870 n. 1 (N.D.Tex.2008) (Fitzwater, C.J.) (citing U.S. Bank Nat’l Ass’n v. Safeguard Ins. Co., 422 F.Supp.2d 698, 701 n. 2 (N.D.Tex.2006) (Fitzwater, J.)).

 

In its reply brief, Canal objected to certain statements in Vela’s affidavit, contending that they are not based on personal knowledge. Because the court has not relied on any of Vela’s statements that are not based on personal knowledge (e.g., the court has not relied on Vela’s stated beliefs that the jury would have found in his favor had he participated at trial and that the jury would not have returned an adverse verdict for $302,396.90 had the toxicology report been properly proved up), the court overrules the objections as moot. Even disregarding this evidence, there are genuine issues of material fact that preclude summary judgment in Canal’s favor.

 

In 2007 Salinas was severely injured while trying to unstrap a load on a truck that he was operating while employed by Palmview and Vela. Salinas brought the Underlying Lawsuit against Palmview. He added Vela as a party in 2008. Canal tendered defenses to Palmview and Vela under reservation of rights. Canal sent three reservation of rights letters. The first two were mailed to Palmview’s address on January 29, 2009 and February 20, 2009, respectively. The third was mailed to Vela’s personal address on October 8, 2009 and received by Vela’s brother on October 13, 2009, the day the trial of the Underlying Lawsuit was scheduled to begin.

 

Canal hired Michele Gonzales, Esquire (“Gonzales”) as defense counsel in the Underlying Lawsuit. According to Vela, Gonzales assured him that he was going to receive unconditional, individual representation. It is not clear from the record when Gonzales began representing Vela in his individual capacity. The first mention of Gonzales on the state court’s docket sheet is on January 29, 2008. Gonzales filed an answer for Palmview at that time but did not file an answer for Vela. On February 20, 2009 Gonzales entered an appearance for Palmview, then reentered the case by filing a motion for continuance that referenced “defendant,” “defendant’s,” and “defendants.” Ds.App. 13. Gonzales later conducted discovery as if representing both Palmview and Vela, sending a request for discovery on behalf of “defendants” on February 25, 2009 and filing a motion to recuse on behalf of “defendants” on April 20, 2009. Id. at 17-41. On October 7, 2009 Lynse Larence Guerra, Esquire (“Guerra”), the attorney from Gonzales’ law firm who entered an appearance at the pretrial hearing, expressed lack of knowledge concerning whether her firm was representing Vela, individually, and whether an answer had been filed for Vela, even though the trial was less than one week away.

 

On October 8, 2009, just four days before trial, Salinas nonsuited Palmview and elected to proceed against Vela. On Gonzales’ advice, Vela did not appear or testify at trial. Vela told Gonzales that Salinas had tested positive for cocaine immediately after the accident and that he wanted to assert this fact as a part of his defense at trial. But because Gonzales did not retain expert witnesses to testify about the test and did not authenticate the relevant medical records, the trial court excluded the evidence. The jury returned a verdict against Vela for $302,396.90. The judgment in the Underlying Lawsuit is currently on appeal.

 

According to defendants, Gonzales gave Vela this advice for two reasons: first, he is a male who lives and dresses as a woman, and the jury would not like a cross-dressing male who lives as a female; and, second, she felt there might be a defect in service, and, if a motion to quash citation were granted, it would be better that he not appear for trial and be served at that time.

 

Contending there is no coverage under the Policy, Canal seeks the following declaratory judgment relief:

 

a. That no coverage exists under CANAL INDEMNITY COMPANY Policy No. L061223 for the claims made in and which form the basis of that particular lawsuit styled: Cause No. C041-08-J; Flavio Salinas v. Palmview Fast Freight Transportation, Inc.; In the 430th Judicial District Court of Hidalgo County, Texas;

 

b. That CANAL INDEMNITY COMPANY has no duty to indemnify or any obligation to pay the Final Judgment rendered against RICARDO VELA in Cause No. C-041-08-J; Flavio Salinas v. Palmview Fast Freight Transportation, Inc.; In the 430th Judicial District Court of Hidalgo County, Texas;

 

c. That CANAL INDEMNITY COMPANY had no duty to defend and has no obligation to continue to appeal the Final Judgment against RICARDO VELA in Cause No. C-041-08-J; Flavio Salinas v. Palmview Fast Freight Transportation, Inc.; In the 430th Judicial District Court of Hidalgo County, Texas;

 

d. That CANAL INDEMNITY COMPANY is entitled to recover reasonable and necessary attorney’s fees expended in the prosecution of this Complaint; and

 

e. That CANAL INDEMNITY COMPANY is entitled to recover all other relief, general or special, at law or in equity, to which it shows itself entitled.

 

P. Mot. 2-3.

 

The Policy contains an Employee Exclusion clause and a Workers’ Compensation Exclusion clause. Canal maintains, and defendants  do not dispute, that the Policy excludes coverage for the damages awarded to Salinas. Instead, defendants contend that Canal can be required, based on waiver or estoppel, to pay the damages awarded to Salinas and the legal fees incurred by Vela.

 

In this memorandum opinion and order, the court refers to Palmview and Vela collectively as “defendants.”

 

Defendants maintain that Canal waived the non-coverage argument by failing to adequately inform him before trial of its reservation of rights. They also posit that, by assuming control over his defense and appointing an attorney who allegedly mishandled the trial to his prejudice, Canal is equitably estopped from avoiding financial responsibility for the defense provided.

 

Canal counters that waiver cannot expand the Policy in a way that adds new risks to the scope of coverage and that the elements of estoppel have not been met. Canal argues that it never intentionally concealed the potential lack of coverage from Vela and that Vela already knew or had the means of knowing that Salinas’ claims would not be covered by the Policy.

 

II

 

Although Canal would normally have the burden of proof at trial of establishing its right to a declaratory judgment, in Texas, an insured generally bears the initial burden of showing that a risk comes within the policy’s coverage. Ulico Cas. Co. v. Allied Pilots Ass’n, 262 S.W.3d 773, 782 (Tex.2008). Moreover, in this case defendants rely on theories of waiver and estoppel, on which they will have the burden of proof at trial, to establish that Canal has the duty to defend and indemnify Vela. See Ds. Br. 2 (“Defendants concede that the Employee Exclusion and the Workers Compensation Exclusion … would normally eliminate coverage for the claims made by Salinas. Thus, the evidentiary burden now shifts to Defendants to show the Court that any particular exceptions to non-coverage, such as the doctrines of waiver or estoppel, apply in this case.”). Therefore, Canal can obtain summary judgment by pointing the court to the absence of evidence on any essential element of the claim in question. See Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Once it does so, defendants must go beyond their pleadings and designate specific facts demonstrating that there is a genuine issue for trial. See id. at 324; Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir.1994) (en banc) (per curiam). An issue is genuine if the evidence is such that a reasonable jury could return a verdict for defendants. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Defendants’ failure to produce proof as to any essential element renders all other facts immaterial. Trugreen Landcare, L.L.C. v. Scott, 512 F.Supp.2d 613, 623 (N.D.Tex.2007) (Fitzwater, J.). Summary judgment is mandatory where defendants fail to meet this burden. Little, 37 F.3d at 1076.

 

This court applies Texas law in addressing the waiver and estoppel issues presented by Canal’s motion. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78-80, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). To determine issues of state law, a federal court looks to the final decisions of the state’s highest court, and in the absence of such a decision, the court must make an Erie guess as to how the state’s highest court would resolve the issue if presented with the same case. See Chaney v. Dreyfus Serv. Corp., 595 F.3d 219, 229 (5th Cir.2010) (citing Six Flags, Inc. v. Westchester Surplus Lines Ins. Co., 565 F.3d 948, 954 (5th Cir.2009)).

 

III

 

The court turns first to defendants’ waiver theory.

 

A

 

“Waiver is the intentional relinquishment of a right actually known, or intentional conduct inconsistent with claiming that right.” Ulico Cas. Co., 262 S.W.3d at 778. The elements of waiver are “(1) an existing right, benefit, or advantage held by a party; (2) the party’s actual knowledge of its existence; and (3) the party’s actual intent to relinquish the right, or intentional conduct inconsistent with the right.” Id.

 

The parties do not disagree about whether Vela had coverage under the Policy for Salinas’ claims in the Underlying Lawsuit. Nor do they dispute whether Canal actually knew that there was no coverage. In each of Canal’s reservation of rights letters to Vela, regardless whether the letter was sent to Palmview’s address or to Vela’s residence, the subject line states “Our Insured: Palmview Fast Freight Transportation” and “Policy # : L061233,” a policy that was specifically amended to replace all references to “Ricky Vela” with “Palmview Fast Freight Transportation, Inc.” Although the salutations refer to “Mr. Vela” and frequently refer to him by use of a second person pronoun (e.g., “your interests” and “your behalf”), the letters do not indicate that Vela is individually insured under the Policy. See P.App. 118-19, 125-28, and 131-34. Even the October 8, 2009 reservation of rights letter, sent to Vela’s residence on the same day that Palmview was nonsuited, only referred to “the allegations of the complaint against Palmview Fast Freight Transportation, Inc.,” id. at 132; there was no indication that Vela was insured individually.

 

Defendants therefore focus their waiver argument on the third element: “the party’s actual intent to relinquish the right, or intentional conduct inconsistent with the right.” Because there is no evidence regarding Canal’s intent to insure Vela individually, defendants ostensibly argue that Canal’s appointment of Gonzales to represent Vela, Canal’s delay in mailing a reservation of rights letter to Vela’s residence address, and Gonzales’ alleged promise to represent Vela “unconditionally” constitute “intentional conduct” inconsistent with preserving Canal’s right not to defend Vela.

 

B

 

Defendants’ argument lacks force. Under Ulico a “waiver” cannot rewrite a policy to create a completely new contractual liability. See Ulico, 262 S.W.3d at 775 (noting that “the insurer may be estopped from denying benefits that would be payable under its policy as if the risk had been covered, but the doctrines of waiver and estoppel cannot be used to re-write the contract of insurance and provide contractual coverage for risks not insured”). “In sum, if an insurer defends its insured when no coverage for the risk exists, the insurer’s policy is not expanded to cover the risk simply because the insurer assumes control of the lawsuit defense.” Id. at 787.

 

This conclusion is not inconsistent with the court’s decision in Mid-Continent Casualty Co. v. Eland Energy, Inc., 2010 WL 610713 (N.D.Tex. Feb.22, 2010) (Fitzwater, C.J.). In Mid-Continent the court held that an insurer could waive conditions precedent intended to benefit it, tender policy limits to the insured, and terminate further obligations to the insured, id. at *1, provided the insurer was not attempting to terminate its duty to defend, id. at *2. The court did not hold that the insured could rely on a theory of waiver to provide coverage for a risk that the insurer did not assume, and it did not create a contract covering a risk not assumed by the insurer.

 

In the instant case, the Policy never purported to insure Vela, individually. The Policy was in fact amended to eliminate all references to “Ricky Vela.” All of the reservation of rights letters refer to “Palmview Fast Freight Transportation” as the insured and to the claims in the Underlying Lawsuit alleged against Palmview. And assuming arguendo that the last reservation of rights letter sent to Vela’s residence address came too late to apprise Vela of his individual liability, the absence of a letter cannot create new rights for Vela; it can only reactivate existing provisions in the Policy by forfeiture, and no policy provision exists to support Vela’s claim for individual coverage. See id. at 782 (“Thus there is no ‘right’ of noncoverage that is subject to being waived by the insurer, even by assumption of the insured’s defense with knowledge of facts indicating noncoverage and without obtaining a valid reservation of rights or non-waiver agreement.”). Furthermore, if Canal and Gonzales induced Vela to relinquish control of his defense to his prejudice by agreeing to represent him “unconditionally,” this is better analyzed as an estoppel, rather than a waiver, argument. In short, regardless whether Canal engaged in any act that could constitute waiver, Vela cannot create individual coverage under the Policy based on a theory of waiver.

 

Defendants mischaracterize the statements in the Ulico concurrence when they assert that, “an exception to the rule [that waiver cannot create new insurance coverage] exists where a liability insurer assumes the insured’s defense with knowledge of facts indicating noncoverage and then waives all of its policy defenses by not declaring a timely reservation of rights or obtaining a timely nonwaiver agreement.” Ds. Br. 9. Not only is that interpretation foreclosed by the majority opinion in Ulico, the concurrence to which defendants cite posits no more than that “[i]f the insurer defends without reserving its rights, and the insured shows prejudice, the insured is entitled to recover the benefits that would have been due under the policy.” Ulico, 262 S.W.3d at 793. An argument based on prejudice is an estoppel argument rather than a waiver argument. The Ulico concurrence was not particularly concerned with fleshing out this distinction in the dicta, surmising that whether coverage was “created” or whether the policy benefits were won through a finding of prejudice, “a rose by any other name would smell as sweet.” In the present case, however, the distinction matters, because, as discussed below, defendants could potentially prevail via the estoppel doctrine even though they cannot based on waiver. Estoppel would provide a different measure of damages than would waiver because estoppel damages would be determined based on detrimental reliance rather than on any existing terms of coverage in the Policy. Rhodes v. Chicago Insurance Co., 719 F.2d 116, 120 (5th Cir.1983), a Fifth Circuit case that predates Ulico, does not compel a contrary conclusion.

 

IV

 

The court now considers defendants’ theory of estoppel.

 

A

 

Estoppel is a separate argument from waiver, with separate elements. Ulico, 262 S.W.3d at 778. Unlike waiver, which is based on the insurer’s intentional relinquishment of rights, estoppel is based on the insured’s detrimental reliance. See Perry Homes v. Cull, 258 S.W.3d 580, 595 (Tex.2008) (“Under Texas law, waiver may not include a prejudice requirement, but estoppel does.”). As stated in Ulico,

 

if an insurer defends its insured when no coverage for the risk exists, the insurer’s policy is not expanded to cover the risk simply because the insurer assumes control of the lawsuit defense. But, if the insurer’s actions prejudice the insured, the lack of coverage does not preclude the insured from asserting an estoppel theory to recover for any damages it sustains because of the insurer’s actions.

 

Ulico, 262 S.W.3d at 787. In other words, Canal can still be held accountable under the estoppel doctrine for any prejudice it caused, even if the defense was not covered under the Policy and there was no waiver of Canal’s rights under the Policy. Although courts cannot judicially rewrite the parties’ agreement to create new coverage terms, estoppel does not create a new contract: it only compensates for reliance damages that the insured suffers when the insurer takes over the insured’s defense. See id. at 786-87 (distinguishing Employers Casualty Co. v. Tilley, 496 S.W.2d 552 (Tex.1973), from the now-disfavored rule in Farmers Texas County Mutual Insurance Co. v. Wilkinson, 601 S.W.2d 520 (Tex.Civ.App.1980, writ ref’d n.r.e.), noting that the prejudice issue of estoppel is independent of the question whether an insurer sent a valid reservation of rights or non-waiver agreement).

 

The doctrine of equitable estoppel requires

 

(1) a false representation or concealment of material facts; (2) made with knowledge, actual or constructive, of those facts; (3) with the intention that it should be acted on; (4) to a party without knowledge or means of obtaining knowledge of the facts; (5) who detrimentally relies on the representations.

 

Id. at 778 (quoting Johnson & Higgins of Tex., Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 515-16 (Tex.1998)).

 

B

 

The court holds that a reasonable jury could not find from the summary judgment evidence that Canal is estopped from declining to cover Palmview. Canal never purported to represent Palmview unconditionally. It sent at least two reservation of rights letters that specifically identified Palmview and the Policy, and it spelled out the conditions attached to its representation. A reasonable jury could not find that Canal made a false representation or that it concealed facts. Canal is entitled to summary judgment declaring that Palmview has no coverage for the claims made in the Underlying Lawsuit.

 

C

 

A reasonable jury could find, however, that Canal is liable to Vela individually based on a theory of equitable estoppel. In essence, Gonzales, as Vela’s Canal-appointed lawyer, allegedly assured Vela that she would represent him individually and unconditionally. All three of Canal’s reservation of rights letters identified Palmview, not Vela, as the insured, and identified by policy number an insurance policy that only covered Palmview. A reasonable jury could therefore find that Vela reasonably relied on Gonzales’ personal assurances, rather than on Canal’s letters regarding Palmview’ s representation, in deciding, to his detriment, not to seek his own counsel.

 

1

 

A reasonable jury could find that Canal made a false representation of a material fact. Although Canal sent reservation of rights letters that included only Vela’s name in the salutation, and the Policy does not cover Vela individually, a reasonable jury could find that the Canal-appointed attorney assigned to defend the Underlying Lawsuit expressly assured Vela that she would be representing him unconditionally. The jury could also find that this was a false representation: a promise of Canal-sponsored legal representation for Vela individually, when Canal did not intend to provide such unconditional individual representation. A reasonable jury could also find that this false representation was of a material fact because Vela decided as a result not to obtain his own attorney to represent him in the Underlying Lawsuit.

 

2

 

A reasonable jury could also find that the Canal-appointed attorney’s assurances, if made, were given knowingly, with Canal’s assent, and with the intent of inducing Vela to entrust his individual defense to an attorney with Canal-defined priorities. Several facts in the summary judgment record could support such a finding. On the day that Palmview was non-suited from the Underlying Lawsuit, Canal sent its third reservation of rights letter, this time to Vela’s personal address. A reasonable jury could infer from the letter, which informed Vela of continued representation, that Canal had been aware of Vela’s reliance on earlier promises of representation. In fact, a reasonable jury could find that Canal bolstered Vela’s reliance by reasserting its intention to investigate and defend Vela’s interests in the Underlying Lawsuit after the named insured had been non-suited. Canal did not, for example, inform Vela that its provision of legal representation would be discontinued now that there was no suit pending against Palmview. In sum, a reasonable jury could conclude that Canal knew that Vela was not insured under the Policy, that Canal chose to provide representation anyway, and that Canal did so for strategic reasons. The handling of the reservation of rights form letters and the alleged defects in the quality of the defense Vela received raise a genuine issue of material fact regarding Canal’s motives in permitting or failing to correct the false representations.

 

3

 

A reasonable jury could also find that Vela had no knowledge of the true facts and no realistic means of obtaining the truth. Both sides admit that three reservation of rights letters were sent regarding Palmview’s coverage-whether at the business address or at Vela’s personal address-and that Vela’s name was the one used in the salutation. All three clearly identified the Policy by number and the named insured, so that there could be no mistake that Canal’s letters were referring to its services and reservation of rights regarding Palmview rather than Vela. Only the third letter is potentially ambiguous, since it still referred to Palmview as the only insured and referenced the Policy, yet the letter was sent on the day that Palmview was dropped from the case. Given the clear identification of Palmview in the first two letters, and considering that the third, contextually ambiguous letter contained the same language as the second letter, a reasonable jury could find that Vela, regardless whether he knew of Canal’s coverage limits with respect to Palmview, was justified in interpreting these letters as inapplicable to his individual defense-a defense that Gonzales had promised him was “unconditional.”  Despite neglecting to file an answer for Vela until the day of trial, Gonzales conducted discovery on behalf of “defendants,” provided advice tailored to Vela in his individual capacity on the strategic implications of trial participation, and continued to represent Vela at trial even after the insured was non-suited. Given the circumstances, Vela’s reliance on Gonzales’ promises of unconditional representation could be viewed as reasonable, notwithstanding what Canal’s letters stated about Palmview’ s representation.

 

Furthermore, such a letter would have arrived too late to foreclose an estoppel claim, as it would have arrived too late to prevent prejudice. Cf. Ulico, 262 S.W.3d at 782 (noting that, in Pacific Indemnity Co. v. Acel Delivery Service, Inc., 485 F.2d 1169, 1175-76 (5th Cir.1973), the insurance company was estopped from denying coverage because, among other things, it failed to notify the insured of possible lack of coverage, and the withdrawal of counsel occurred less than one month before trial).

 

Whether Gonzales actually gave such an assurance, and the extent of Canal’s involvement, are fact questions for trial. Gonzales’ actions gave no particular notice to Vela that she was not his attorney.

 

A jury could also reasonably find that Vela had no reasonable means of obtaining the truth about Canal’s intentions. His attorney did not advise him of the limitations of his individual representation, and even when pressed by the trial court in the Underlying Lawsuit, the attorney who entered an appearance on the defendants’ behalf would not deny that Vela was receiving individual representation or clarify whether any conditions applied. Canal itself never corrected Vela’s belief that he was being unconditionally represented, and it bolstered that belief by continuing to support his legal defense after Palmview was nonsuited. With the lack of any indications to the contrary, and several to suggest that Canal was providing representation as Gonzales promised, Vela had no reason to rely on reservation of rights letters that referred to Palmview as the insured rather than on his Canal-appointed attorney’s word.

 

4

 

Finally, a reasonable jury could find that Vela detrimentally relied on Gonzales’ assurance of unconditional representation. “Texas estoppel law does not allow a party to withdraw a representation once the other party takes ‘action or forbearance of a definite and substantial character.’ ” Perry Homes, 258 S.W.3d at 595 (citing Trammel Crow Co. No. 60 v. Harkinson, 944 S.W.2d 631, 636 (Tex.1997)). There must, however, be evidence of something more than speculative prejudice. See Ulico, 262 S.W.3d at 785-86 (holding that mere possibility of prejudice was insufficient justification for meddling with parties’ agreements, and noting that estoppel tends to be upheld in cases involving actual prejudice); Tilley, 496 S.W.2d at 561 (declaring that court is only concerned with actual events in case rather than with speculative prejudice).

 

“The question on which the insurer’s liability should turn is whether an insured is prejudiced as a result of the conflict, an inadequate or absent disclosure, or other actions of the insurer.” Ulico, 262 S.W.3d at 786-87. Defendants present two theories to support their assertion of prejudice. First, they maintain that Vela was prejudiced because he was advised not to appear at trial. This alone is not enough to constitute prejudice, however, because the alleged harm from following his counsel’s good-faith advice is purely speculative. The jury in the Underlying Lawsuit may have returned a verdict against Vela regardless whether he participated in the trial.

 

Defendants’ second contention-that Gonzales was serving Canal’s interests while representing Vela-presents a more viable theory of prejudice. See id. at 782 (noting that, in Tilley, 496 S.W.2d at 561, a Texas Supreme Court case, the court held that conflict of interest constituted prejudice as a matter of law when an attorney hired by the insurer for the insured’s benefit also worked on building a policy defense for the insurer, and noting that the Fifth Circuit, in Pacific Indemnity Co. v. Acel Delivery Service, Inc., 485 F.2d 1169, 1175-76 (5th Cir.1973), found prejudice because of an apparent conflict of interest where insurer did not inform insured of potential conflict before assuming insured’s defense). Relying on an assurance of unconditional individual representation, Vela opted not to seek his own counsel. Forgoing the right to choose one’s own counsel could constitute an “action or forbearance of a definite and substantial character”-meeting Perry Homes’ definition of prejudice. Given counsel’s lack of preparation specific to Vela’s individual defense, failure to file an individual answer before the day of trial, and failure to present an expert witness to prove up key evidence, there is sufficient evidence of conflict to make detrimental reliance a question of fact to be decided at trial.

 

Moreover, a reasonable jury could find that Vela’s reliance was reasonable, because Canal never dispelled Vela’s misunderstandings about the proper scope of Gonzales’ representation, and it would have been easy enough to inform Vela that his counsel only represented Palmview, not Vela individually. Canal did send reservation of rights letters pertaining to Palmview’s Policy, but a reasonable jury could find that the letters were ambiguous about whether they applied to Vela individually. The January 29 letter informed Vela that it is “your right and privilege to retain counsel, at your own expense, to protect your interest,” but the February 20 letter stated that “Canal has assigned the defense of this matter to Michele Gonzales to defend and protect you in this matter,” and “[The firm’s] job is to defend your interest in that suit. You, and not Canal, will be their client.” The letters did not specify whether, by “your interest,” they meant Vela’s interest in the defense of Palmview or Vela’s interest in his individual defense. And the identification of Palmview as the insured at the top of the letter could have led Vela to believe that the reservation of rights applied to Palmview rather than to him individually. Although the October 8 letter could be found to have been directed to Vela individually (because Palmview was non-suited from the Underlying Lawsuit on the same date), by then (five days before trial) it was too late to withdraw without prejudice or to surprise the client with an assertion that the reservation of rights attached to Palmview’s representation had also applied to him individually all along. And a reasonable jury could find that the motion for leave to file second amended complaint-the November 3, 2009 document that finally stated in unambiguous terms Canal’s position on Vela’s representation-came too late to preclude prejudicial consequences for Vela. See Pac. Indem. Co., 485 F.2d at 1174-75 (holding that withdrawal that took place less than one month before trial not only “[did] not preclude a finding of prejudice, but compel[led] it,” and noting as problematic that insurer assumed insured’s defense without making further inquiry about noncoverage, then tried to rely on noncoverage as justification). This is especially true given that Vela had been served as a defendant in the Underlying Lawsuit on December 5, 2008, and Canal had over one year to explain to Vela that he was not being represented individually, or that he was being represented individually but not unconditionally.

 

Canal emphasizes that Vela was personally served with the first amended complaint in this action on September 14, 2009. But this pleading does not mention Canal’s representation of Vela, focusing exclusively on Canal’s arguments concerning Palmview. It was not until the second amended complaint that Canal sought any relief against Vela.

 

A reasonable jury could find that Vela’s reliance on his insurer-appointed counsel was to his detriment. There is summary judgment evidence that Gonzales did not file an answer for Vela until the day of trial. The attorney from Gonzales’ law firm who entered an appearance at the pretrial hearing admitted that she did not know whether her firm represented Vela individually, and that she was “not sure” about how Vela’s individual defenses would differ from Palmview’s. She was not even aware whether an answer had been filed for Vela. Although Vela had given counsel advance notice about Salinas’ cocaine test results, which could have formed the basis of a comparative negligence defense, counsel failed to make basic preparations to properly admit the results into evidence, such as providing an expert witness to authenticate or interpret the results for the jury. Cf. Pac. Indem. Co., 485 F.2d at 1175 (finding prejudice where counsel did not depose a “crucial witness”). A reasonable jury could find that Vela’s ability to obtain discovery or pretrial resolution of his individual interests, aside from whatever aid he could receive incident to counsel’s defense of Palmview, was compromised. The jury could also reasonably find that Vela’s counsel treated his individual defense as an afterthought to her services to Palmview. And it could find that neither Canal nor Gonzales informed Vela that, in receiving legal services from the Canal-appointed attorney, Vela would forfeit his rights to pursue an independent defense, or that his interests might conflict with Palmview’s and therefore yield to Palmview’s defense over his own.

 

To deny Canal’s summary judgment motion, it is unnecessary to say precisely how Vela’s defense might have been different had Canal not selected the same counsel to represent Palmview and Vela. See id. at 1176 (after listing several instances of neglectful representation, finding prejudice where insurer deprived claimant of the “opportunity to present a more forceful defense,” but declining to speculate as to precisely how a “more forceful defense” might have been different from the one provided); see also Ulico, 262 S.W.3d at 786 (“It goes without saying that an attorney defending an insured has the obligation to fully disclose to the insured conflicts of interest, whether because of the attorney’s relationship with the insurer or otherwise.”). A reasonable jury could find that, in inducing Vela to forgo an individual defense, Canal deprived him of the opportunity to present a more forceful one.

 

The court therefore holds that a reasonable jury could find in favor of Vela on a theory of equitable estoppel, and it denies Canal’s motion for summary judgment except to the extent granted above concerning Palmview.

 

* * *

 

For the foregoing reasons, the court grants in part and denies in part Canal’s motion for summary judgment. The court declares that, under the Policy, Palmview has no coverage for the claims made in the Underlying Lawsuit. 0 The court otherwise denies the motion .1

 

0. Canal may apply for an award of attorney’s fees after the court enters a final judgment, under the procedure and in accordance with the deadline prescribed by Fed.R.Civ.P. 54(d).

 

1. Canal has filed a motion for leave to file a reply appendix. Because the contents of the reply appendix are either already part of the summary judgment record or do not affect the resolution of Canal’s motion, the motion is denied.

 

SO ORDERED.