United States District Court, N.D. Illinois, Eastern Division.

NATIONAL LIABILITY & FIRE INSURANCE CO., Plaintiff,

v.

LAD LOGISTICS, INC., Zhen Feng Lin, and Li Chen, Defendants.

Case No. 20 C 3767

Signed January 3, 2023

Attorneys and Law Firms

Wendy N. Enerson, Elisabeth Charlotte Ross, Jeffrey Brian Greenspan, Cozen O’Connor, Chicago, IL, for Plaintiff.

Norman T. Finkel, Schoenberg Finkel Newman & Rosenberg, LLC, Chicago, IL, Matthew Patrick Tyrrell, Richard Marc Goldwasser, William R. Klein, Schoenberg Finkel Beederman Bell & Glazer, LLC, Chicago, IL, for Defendant LAD Logistics, Inc.

Kent D. Sinson, Sinson Law Group, LLC, Chicago, IL, for Defendants Zhen Feng Lin, Li Chen.

MEMORANDUM OPINION AND ORDER

MATTHEW F. KENNELLY, District Judge:

*1 National Liability and Fire Insurance Co. (National Liability) has filed suit against Zhen Feng Lin and his wife, Li Chen,¹ seeking a declaratory judgment regarding the extent of its liability to the couple under a liability insurance policy that National Liability issued to Lin’s employer LAD Logistics, Inc. (LAD). Lin and Chen’s claim relates to a May 2017 traffic collision in which Lin was seriously injured while driving a truck owned by his other employer, Win Win Seafood Wholesale, LLC (Win Seafood). Lin and Chen sued Katherine Chickey—the underinsured non-party who was legally responsible for the collision—in state court and obtained a $100,000 settlement from Chickey’s insurer. Lin also made a workers’ compensation claim against Win Seafood, on which he obtained a $301,259.90 settlement. Finally, Lin and Chen asserted a claim for underinsured motorist coverage (UIM) under an insurance policy issued by Win Seafood’s insurer, Hartford Accident and Indemnity Co., for which they received $672,060.82.

The claim Lin and Chen assert under the National Liability policy is similar to their claim under the Hartford Accident policy in that it is based on the UIM coverage provision of LAD’s policy with National Liability. National Liability alleges that the policy does not afford coverage to Lin and Chen for their injuries resulting from the collision. Lin and Chen have asserted a counterclaim, two counts of which survived National Liability’s motion to dismiss. In count 2, a breach of contract claim, Lin and Chen seek to recover $750,000, the limit of coverage under the UIM coverage term of the insurance policy; they allege that National Liability has failed to pay despite the fact that it is liable. Count 3 of Lin and Chen’s counterclaim is a claim under 215 ILCS 5/155 for vexatious refusal to pay or vexatious delay in paying.

National Liability has moved for this Court to enter summary judgment in its favor on count 1 of its complaint and on counts 2 and 3 of Lin and Chen’s counterclaim. Lin and Chen have filed a cross motion for summary judgment on counts 2 and 3 of their counterclaim. For the reasons set forth below, the Court grants National Liability’s motion for summary judgment and denies Lin and Chen’s motion.

Background

In May 2017, Lin worked as a truck driver for two food retailers, Win Seafood and LAD. Both companies operate the trucking aspect of their businesses out of the same location, 7131 W. 61st Street, Chicago. At the time of the accident, Lin was driving a truck from his final delivery to a restaurant in Fort Wayne, Indiana and returning to 7131 W. 61st Street. It is undisputed that the truck Lin was driving was a 2011 Hino truck (VIN No. 5PVNJ8JT7B4S53094) co-owned by Win Seafood and its owner, Gordon Zheng, and insured by Hartford Accident. The parties’ dispute concerns whether the Win Seafood truck is a “covered auto” under LAD’s policy with National Liability and whether Lin can qualify as “an insured” under the UIM coverage portion of that policy.

*2 The UIM coverage provided by National Liability’s insurance policy is attached to the policy as an “endorsement.” The limit of that coverage is $750,000 per accident. See Pl.’s Ex. A, (insurance policy), Form HA 00 25 06 15 at 4. The UIM Endorsement provides coverage only for bodily injuries sustained by an “insured” caused by the owner or driver of an underinsured motor vehicle. Because LAD is a corporation, only the following individuals qualify as an “insured”:

a. Anyone “occupying” a covered “auto” or a temporary substitute for a covered “auto.” The covered “auto” must be out of service because of its breakdown, repair, servicing, “loss” or destruction.

b. Anyone else “occupying” an “auto” [LAD] do[es] not own who is an “insured” for Covered Autos Liability Coverage under the Coverage Form, but only at times when that person is an “insured” for Covered Autos Liability Coverage under the Coverage Form.

c. Anyone for damages he or she is entitled to recover because of “bodily injury” sustained by another “insured.”

Id. at 50-51. Subsection (c) is inapplicable here, and whether Lin qualifies as an insured under subsection (a) is disputed because National contends that the Win Seafood was not a temporary substitute auto for one of its covered autos.

Regarding subsection (b), persons who qualify as an “insured” for Covered Autos Liability Coverage include LAD “for any covered ‘auto’ ” or ‘[a]nyone else while using with [LAD’s] permission a covered ‘auto’ ” [LAD] owns, hires, or borrows.” Autos that are deemed “covered ‘autos’ ” under the policy’s Liability Coverage include: (1) autos that are listed on the Schedule of Covered Autos; (2) an auto that LAD acquires after the policy begins, but only if (i) National Liability already covers all autos owned by LAD or t replaces an auto LAD previously owned that had that coverage; and (ii) LAD tells National within 30 days after it acquires the auto that it wants National to cover it; and (3) any auto that is not owned by LAD “while used with the permission of its owner as a temporary substitute for a covered ‘auto’ [LAD] owns that is out of service….” Id. at 37.

Because it is undisputed that the truck here was not listed on the Schedule of Covered Autos and was not newly acquired by LAD after the policy period started, the only relevant provision under which the truck would be covered is section C.3, which covers temporary substitute autos. Thus, a showing that the Win Seafood truck was being used as a temporary substitute auto for a covered, out-of-service LAD truck is the only avenue that would allow Lin and Chen to be considered covered—whether as “insureds” or as “insureds” operating a “covered auto.”

Lin and Chen contend that at the time of the accident, Lin was making deliveries for, and therefore working on behalf of, both Win Seafood and LAD even though the truck was a Win Seafood truck. Lin contends that he was using a Win Seafood truck as a substitute for LAD deliveries because at least one of LAD’s trucks was out of service and that it was common for the two companies to use their trucks interchangeably. National Liability disputes this and maintains that LAD had nothing to do with the accident, the truck, or the deliveries being made on that day. It has offered evidence that on May 24, 2017, Lin was driving only on behalf of Win Seafood, in a Win Seafood truck, making deliveries of exclusively Win Seafood products, and that he was not paid for any work done on behalf of LAD for that day. The parties also dispute and have provided contrary evidence for Lin and Chen’s contention that, in keeping with the alleged practice, the truck was being used as a temporary substitute for a covered LAD vehicle that was out of service.

Discussion

*3 Summary judgment is appropriate if there is no genuine dispute of material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a); Martinsville Corral, Inc. v. Soc’y Ins., 910 F.3d 996, 998 (7th Cir. 2018). The Court views the evidence and draws all reasonable inferences in the nonmoving party’s favor. Cervantes v. Ardagh Grp., 914 F.3d 560, 564 (7th Cir. 2019). If the nonmoving party fails to establish the existence of an element essential to its case on which it would bear the burden of proof at trial, summary judgment must be granted to the moving party. Id.

The primary issues on the parties’ cross motions for summary judgment involve the interpretation of the terms of an insurance policy. Construction of an insurance policy is typically a question of law appropriately decided on summary judgment. Twenhafel v. State Auto Prop. & Cas. Ins. Co., 581 F.3d 625, 628 (7th Cir. 2009).

An insurance policy is a contract, and the rules governing interpretation of contracts govern the interpretation of insurance policies. Clarendon Nat’l Ins. Co. v. Medina, 645 F.3d 928, 933 (7th Cir. 2011). In particular, if the terms of an insurance policy are clear and unambiguous, a court gives those terms their plain meaning and applies the policy as it is written. Berrey v. Travelers Indem. Co. of Am., 770 F.3d 591, 595 (7th Cir. 2014); Medina, 645 F.3d at 933. If, on the other hand, a policy term that limits an insurer’s liability is ambiguous—in other words, susceptible of more than one reasonable interpretation—the term is liberally construed in favor of coverage. Medina, 645 F.3d at 933.

1. Declaratory judgment claim

a. Policy terms

Lin and Chen contend that they qualify as insureds under the policy, which in the case of a corporate insured like LAD defines covered “insureds” as including anyone occupying a covered auto owned by LAD or a temporary substitute or a replacement for a covered auto. Lin and Chen further contend that National Liability cannot show that Lin was not occupying a temporary substitute for one of LAD’s covered autos. But it is well settled that the insured has the burden of proving that a claim falls within the coverage of a policy. Travelers Personal Ins. Co. v. Edwards, 2016 IL 141595, ¶ 22, 48 N.E.3d 298, 303; see also Sherrod v. Esurance Ins. Servs., Inc., 2016 IL 150083, ¶ 15, 65 N.E.3d 471, 475. Lin and Chen have erroneously attempted to shift the burden to National Liability to prove a negative.

Lin and Chen contend that the truck driven by Lin must have been a temporary substitute because LAD “did not know which trucks were out of service” in May of 2017 and “no records existed.” Dkt. 120 at 8. First, it’s inaccurate to say that LAD has no knowledge or records about which of its vehicles was out of service at the time, or that any lack of documentation would inevitably prove that the Win Seafood truck was a substitute. National Liability has offered evidence in the form of auto shop receipts and admissions that show: (1) which vehicles were out of service from March 1, 2017 to May 31, 2017; and (2) that any of the LAD trucks that needed service received that service prior to May 24, 2017. National Liability also offered deposition testimony and admissions to the effect that the truck was not a substitute for an out-of-service LAD truck because whenever one of its trucks was out of service, LAD only used trucks rented from national rental companies, not spare Win Seafood trucks.

*4 Second, even if National Liability has offered no records relating to LAD’s out-of-service vehicles, that would not be dispositive. As indicated, it is Lin and Chen’s burden to offer evidence that would permit a reasonable factfinder to determine that there was coverage. Trade Fin. Partners, LLC v. AAR Corp., 573 F.3d 401, 407 (7th Cir. 2009) (“the nonmoving party must point to specific facts showing that there is a genuine issue for trial; inferences relying on mere speculation or conjecture will not suffice.”). As the parties with the burden of persuasion on coverage, Lin and Chen cannot merely point to the absence of evidence; they have to offer evidence that would permit a finding that a particular auto on the policy was out of service on May 24, 2017 and that LAD was using the Win Seafood truck as a temporary substitute for that covered auto. See State Farm Mut. Auto. Ins. Co. v. Osborne, 2020 IL App (5th) 190060, ¶ 31, 148 N.E.3d 84, 92 (absent evidence that a covered vehicle is “out of service,” the insurer is not obligated to provide coverage because it would be assuming the risk of two vehicles for one premium). Other temporary substitute cases have held that the insured was required to offer specific evidence that the covered vehicle was actually withdrawn from any use, not just that it was “out of service.” Id. ¶ 32-35, 148 N.E.3d at 92; see also, Prudence Mut. Cas. Co. v. Sturms, 37 Ill. App. 2d 304, 307, 185 N.E.2d 366, 366 (1962); Atkinson v. State Farm Mut. Auto. Ins. Co., 18 Ohio App. 3d 59, 480 N.E.2d 819, 821 (1984); Erickson v. Genisot, 322 Mich. 303, 353, 33 N.W.2d 803, 803 (1948).

Lin and Chen have failed to offer evidence that would permit a reasonable factfinder to determine that the Win Seafood truck was being used as a temporary substitute for a covered LAD truck, let alone that the LAD truck supposedly being substituted was actually withdrawn from use. Moreover, the unambiguous language of National Liability’s policy indicates an intent to extend coverage in this situation only to an LAD covered vehicle or a temporary substitute, not to both at the same time. Because Lin and Chen have not offered evidence that indicates the existence of genuine factual dispute regarding whether the truck Lin was driving was, at the time, a substitute for a covered LAD vehicle within the meaning of the National Liability policy, they have not met their burden for purposes of summary judgment.

Lin and Chin also contend that “coverage would also exist if Lin was driving a ‘borrowed’ auto.” Dkt. 118 at 7. But National Liability is correct that the operative clause of the policy states that an “insured” includes “[a]nyone else while using with [LAD’s] permission a covered ‘auto’ [LAD] owns, hires, or borrows.” Pl.’s Ex. A at 37 (emphasis added). Borrowing of the Win Seafood truck is an avenue to coverage only if that truck itself is covered, which it was not.

Finally, Lin and Chen contend that Lin qualifies as an insured under the policy because he was listed as a driver on the policy. They do not, however, cite to any page or provision in the policy—presumably because Lin’s name does not appear anywhere in the policy. Instead, they cite to portions of deposition testimony by the following three persons: National Liability’s claim examiner, Kelsey Downes, Pl.’s Ex. B, Downes Dep, p. 68:5-17; National Liability’s underwriter, Josh Stubbendick, Pl.’s Ex. C, Stubbendick Dep, p. 11:7-12:21; and Ming Ngai, the person responsible for obtaining insurance for LAD, Pl.’s Ex. D, Ngai Dep, p. 77:5-22. But the cited testimony does not support Lin and Chen’s contention. Downes testified that her understanding was that Lin was a driver for LAD and was not driving a covered auto. Stubbendick and Ngai’s testimony indicates only that Lin’s name was provided on a list of drivers submitted in its application for insurance. In other words, his name was included for underwriting purposes, which does not make him a named insured under the policy. And even if Lin is listed somewhere in the policy itself, the Court finds the caselaw cited in National Liability’s brief distinguishing a listed driver from an “insured” persuasive. Dkt. 128 at 5-6. For these reasons, Lin does not fall within the policy’s definition of an insured.

*5 In sum, the Court concludes that Lin and Chen are not entitled to coverage under LAD’s National Liability policy because Lin does not qualify as an insured and was not occupying a covered auto at the time of the accident.

b. Anti-stacking and setoff provisions

Because the Court finds that Lin and Chen are not entitled to UIM coverage under LAD’s policy with National Liability, it need not address the parties’ arguments regarding the policy’s anti-stacking and set off provisions.

c. Elliot Flood’s opinion

National Liability asks the Court to strike all of Lin and Chen’s statements of fact² that rely on the opinions of their insurance expert, Elliot Flood, on the ground that they amount to impermissible legal conclusions that are outcome-determinative. The Court need not address this motion because even after considering the portions of Flood’s opinion at issue, the Court finds that National Liability is entitled to summary judgment. As previously discussed, the primary issues on the parties’ cross motions for summary judgment involve the interpretation of the terms of an insurance policy, which is a question of law. Twenhafel, 581 F.3d at 628. The rules governing interpretation of insurance policies are well settled, and there are no ambiguities in this policy for Flood to opine about. In short, his opinions are not probative on the legal questions at hand. Thus, even if the Court were to deny the National Liability’s motion to strike Flood’s opinions and take them into consideration, National Liability still would be entitled to summary judgment. National Liability’s motion to strike is therefore denied as moot.

2. Section 155 claim

Lin and Chen contend that National Liability denied their claim on the policy without conducting a thorough investigation, in violation of section 155 of the Illinois Insurance Code. Section 155 states in relevant part:

In any action by or against a company wherein there is in issue [1] the liability of a company under a policy or policies of insurance or [2] the amount of the loss payable thereunder, or [3] for an unreasonable delay in settling a claim, and it appears to the court that such action or delay is vexatious and unreasonable, the court may allow as part of the taxable costs in the action reasonable attorney fees [and] other costs.

215 Ill. Comp. Stat. 5/155 (2020). An insurer’s conduct is not vexatious and unreasonable if: (1) there is a bona fide dispute concerning the scope and application of insurance coverage, Green v. Int’l Ins. Co., 238 Ill. App. 3d 929, 935, 605 N.E.2d 1125, 1129 (1992); (2) the insurer asserts a legitimate policy defense, Cummings Foods, Inc. v. Great Central Ins. Co., 108 Ill. App. 3d 250, 259, 439 N.E.2d 37, 44 (1982); (3) the claim presents a genuine legal or factual issue regarding coverage, Lazzara v. Esser, 622 F. Supp. 382, 386 (N.D. Ill. 1985); or (4) the insurer takes a reasonable legal position on an unsettled issue of law. Martz v. Union Labor Life Ins. Co., 573 F. Supp. 580, 586 (N.D. Ill. 1983), rev’d on other grounds, 757 F.2d 135 (1985). See also, Citizens First Nat. Bank of Princeton v. Cincinnati Ins. Co., 200 F.3d 1102, 1110 (7th Cir. 2000).

*6 National Liability’s conduct vis-à-vis Lin and Chen’s claim was neither vexatious nor unreasonable. Lin and Chen make several contentions regarding the insufficiency of claim examiner Downes’s investigation, including evidence they contend Downes purposely overlooked or steps they think she should have taken. For example, Lin and Chen contend that Downes never made an effort to speak to anyone at LAD despite reviewing the pleadings in the Hartford matter that suggest Lin may have been working for LAD on the day of the accident. They also contend that Downes had a file in her possession from BerkleyNet, LAD’s worker’s compensation provider, that contained additional information suggesting that Lin was working for LAD when the accident occurred. National Liability disputes both points and contends that Downes did make several attempts to contact LAD. National Liability also correctly points out that assuming Lin was working within the scope of his employment with LAD at the time of the accident, that is not determinative of coverage because he was not occupying a covered auto or a temporary substitute for a covered auto, nor did he qualify as an insured.

Even if Lin and Chen are correct about National Liability’s investigation, these shortcomings would not amount to vexatious or unreasonable action that would render National Liability liable under section 155. As addressed earlier, National Liability genuinely disputed coverage in this matter. Because of this bona fide dispute, National Liability asserted a legitimate defense to coverage, which the Court has now resolved in the insurer’s favor. In addition, National Liability began its investigation promptly upon being notified of the claim approximately three years after the accident occurred. For these reasons, as a matter of law, National Liability’s conduct was neither vexatious nor unreasonable.

Conclusion

For the reasons stated above, the Court grants plaintiff’s motion for summary judgment [103] and denies the defendants’ cross motion [122] and concludes that neither Lin nor Chen are entitled to UIM coverage under LAD’s policy with National Liability. The Clerk is directed to enter judgment in favor of plaintiff National Liability & Fire Insurance Company and against defendants LAD Logistics, Inc., Zhen Feng Lin, and Li Chen on all claims and counterclaims and declaring that there is no coverage under the National Liability insurance policy issued to LAD Logistics for the May 2017 collision involving Zhen Feng Lin.

All Citations

1 Defendants’ counsel refers to the defendants as Lin and Chen, so the Court will do the same.

2 Dkt. 117, ¶¶ 4, 31-34, 36-38, 40, and Dkt. 121, ¶¶ 13, 27-30, 33-34.

End of Document

United States District Court, W.D. Texas, Austin Division.

CLEAR BLUE INSURANCE COMPANY, Plaintiff

v.

HECTOR FERNANDEZ, JUANA PURA MALDONADO DE GARCIA, MARTE FUENTES GOMEZ, as Heir of Anabella Garcia, Decedent, and as Representative of the Estate of and Next Friend of M.M., M.F., and M.F., Minor Children, and F&I ENTERPRISES, INC., Defendants

Case No. 1:22-CV-00038-RP

Filed 01/17/2023

REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE

SUSAN HIGHTOWER UNITED STATES MAGISTRATE JUDGE

*1 TO: THE HONORABLE ROBERT PITMAN UNITED STATES DISTRICT JUDGE

Before the Court are Plaintiff’s Motion for Summary Judgment Against Defendants, filed May 6, 2022 (Dkt. 12); Defendant Juana Maldonado De Garcia’s Response to Plaintiff’s Motion for Summary Judgment, filed May 20, 2022 (Dkt. 13); Plaintiff’s Reply to Defendant Juana Maldonado De Garcia’s Response, filed June 1, 2022 (Dkt. 15); Defendant Hector Fernandez’s Response to Plaintiff’s Motion for Summary Judgment, filed August 19, 2022 (Dkt. 16); and Plaintiff’s Reply to Defendant Hector Fernandez’s Response, filed August 29, 2022 (Dkt. 19). By Text Order entered December 22, 2022, the District Court referred the Motion to this Magistrate Judge for a report and recommendation, pursuant to 28 U.S.C. § 636(b)(1)(B), Federal Rule of Civil Procedure 72, and Rule 1(d) of Appendix C of the Local Court Rules of the United States District Court for the Western District of Texas.

I. Background

On July 18, 2019, Plaintiff Clear Blue Insurance Company (“Clear Blue”), an Illinois company, issued Defendant F&I Enterprises, Inc. (“FIE”), a Texas trucking company, a commercial auto insurance policy for the policy period July 11, 2019 to July 11, 2020. Dkt. 12-1 at 3-79 (“Policy”). The Policy provides that Clear Blue has “a right and duty to defend” FIE in covered lawsuits, and that Clear Blue “will pay all sums [FIE] legally must pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies, caused by an ‘accident’ and resulting from the ownership, maintenance or use of a covered ‘auto’.” Id. at 25. Relevant here, the Policy also contains a “Limit Of Insurance” provision limiting coverage for “any one ‘accident’ ” to $1 million. Id. at 28.

On December 3, 2019, one of FIE’s tractor-trailers was involved in a collision with two other vehicles on U.S. Highway 281 in Brooks County, Texas. The drivers and passengers of the other vehicles (“Underlying Plaintiffs”) allege that FIE employee Joe Jackson tried to back a tractor-trailer owned by FIE into Galvan Towing/JV Towing’s private driveway on the west side of Highway 281. Dkt. 12-4 at 4. Jackson could not put the transmission into reverse and allegedly “yelled out” to his passenger and fellow employee Sedrick Lamar Smith (“Smith”) to assist him. Id. Smith allegedly took over operating the vehicle and attempted to put it in reverse. Id. The Underlying Plaintiffs allege that during this time, “the tractor-trailer was positioned perpendicular to Highway 281 and covered the entirety of the northbound lanes, the unprotected median, and the southbound lanes of Highway 281,” which “blocked and obstructed the roadway and the path of motorists.” Id.

While Smith was trying to back up the tractor-trailer into the driveway, Anabelia Garcia, who was driving northbound on Highway 281, crashed her van into its passenger side. Dkt. 8-2 at 3. Garcia died in the collision. Dkt. 12 at 5. Garcia’s three young children and Juana Pura Maldonado De Garcia, all passengers in Garcia’s van, survived. Id. Plaintiff Hector Fernandez alleges that Smith and Jackson helped the passengers out of Garcia’s van, but “failed to take any additional actions to prevent another impact.” Dkt. 12-4 at 4. A few minutes later, Fernandez, who also was driving his tractor-trailer northbound on Highway 281, crashed into the right side of the FIE tractor-trailer. Id.

*2 On January 7, 2020, Fernandez filed a negligence lawsuit against FIE, Smith, Jackson, and Galvan Towing in Brooks County District Court. Fernandez v. F&I Enters., No. 10-01018178-CV (79th Dist. Ct., Brooks Cnty., Tex. Jan. 7, 2020) (Dkt. 12-4). De Garcia subsequently intervened in Fernandez’s suit. Dkt. 12-5. Fernandez and De Garcia’s lawsuit is set for jury trial in September 2023.¹ On June 16, 2020, Garcia’s surviving husband, Marte Fuentes Gomez, filed a separate negligence lawsuit, on behalf of his deceased wife and her children, in Nueces County, Texas. Gomez v. F&I Enter., No. 2020-cv-60868-4 (Co. Ct. at Law No. 4, Nueces Cnty., Tex. June 16, 2020) (Dkt. 8-2). Gomez’s lawsuit is set for jury trial in August 2023.²

On January 14, 2022, Clear Blue filed this declaratory judgment action under 28 U.S.C. § 2201, seeking a declaration that the claims asserted in the two pending state court lawsuits (“Underlying Lawsuits”) against its client, FIE, are subject to a single policy limit of $1 million under the Policy. Original Complaint for Declaratory Judgment (Dkt. 1). Clear Blue argues that Garcia and Fernandez’s two separate collisions with the FIE tractor-trailer should be considered a single “accident” under the Policy and therefore subject to the $1 million coverage limit.

On May 6, 2022, Clear Blue filed this Motion for Summary Judgment under Rule 56(c), asking the Court to “grant its Motion for Summary Judgment and rule as a matter of law that $1 million is the maximum available coverage for all claims against its insured.” Dkt. 12 at 11. Defendants De Garcia and Fernandez³ oppose the Motion, arguing that summary judgment on Clear Blue’s duty to indemnify FIE is premature because the Underlying Lawsuits are pending in state court.

II. Applicable Legal Standards

A. 28 U.S.C. § 2201

“The Declaratory Judgment Act provides that, ‘[i]n a case of actual controversy within its jurisdiction … any court of the United States … may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought.’ ” MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 126 (2007) (quoting 28 U.S.C § 2201(a)). When considering a declaratory judgment action, a district court engages in a three-step inquiry. Orix Credit All., Inc. v. Wolfe, 212 F.3d 891, 895 (5th Cir. 2000). The court must ask: (1) “whether an ‘actual controversy’ exists between the parties”; (2) whether it has authority to grant declaratory relief; and (3) whether “to exercise its broad discretion to decide or dismiss a declaratory judgment action.” Id. The statute’s requirement of a “case of actual controversy” refers to an Article III case or controversy. MedImmune, 549 U.S. at 126. The party moving for a declaratory judgment bears the burden of pleading facts showing the existence of a justiciable controversy. Frye v. Anadarko Petroleum Corp., 953 F.3d 285, 293-94 (5th Cir. 2019).

B. Rule 56

*3 Summary judgment will be rendered when the pleadings, the discovery and disclosure materials, and any affidavits on file show that there is no genuine dispute as to any material fact and that the moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 323-25 (1986); Washburn v. Harvey, 504 F.3d 505, 508 (5th Cir. 2007). A dispute over a material fact is “genuine” if the evidence is such that a reasonable jury could return a verdict in favor of the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). When ruling on a motion for summary judgment, the court is required to view all inferences drawn from the factual record in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 587 (1986); Washburn, 504 F.3d at 508. A court “may not make credibility determinations or weigh the evidence” in ruling on a motion for summary judgment. Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150 (2000); see also Anderson, 477 U.S. at 254-55.

Once the moving party has made an initial showing that there is no evidence to support the nonmoving party’s case, the party opposing the motion must come forward with competent summary judgment evidence of the existence of a genuine fact issue. Matsushita, 475 U.S. at 586. Mere conclusory allegations are not competent summary judgment evidence, and thus are insufficient to defeat a motion for summary judgment. Turner v. Baylor Richardson Med. Ctr., 476 F.3d 337, 343 (5th Cir. 2007). Unsubstantiated assertions, improbable inferences, and unsupported speculation also are not competent summary judgment evidence. Id. The party opposing summary judgment is required to identify specific evidence in the record and to articulate the precise manner in which that evidence supports its claim. Adams v. Travelers Indem. Co. of Conn., 465 F.3d 156, 164 (5th Cir. 2006). If the nonmoving party fails to make a showing sufficient to establish the existence of an element essential to its case and on which it will bear the burden of proof at trial, summary judgment must be granted. Celotex, 477 U.S. at 322-23.

C. Texas Insurance Law

When federal jurisdiction is based on diversity of citizenship, as in this case, federal courts look to the substantive law of the forum state. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938); Colony Ins. Co. v. Peachtree Constr., Ltd., 647 F.3d 248, 252 (5th Cir. 2011). Therefore Texas law governs this diversity action and informs the Court’s interpretation of the Policy.

The principles courts use when interpreting an insurance policy under Texas law are well established. Gilbert Texas Const., L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118, 126 (Tex. 2010). “Insurance policies are interpreted under the rules of construction that apply to contracts in general. The primary goal of contract construction is to effectuate the parties’ intent as expressed in the contract.” Monroe Guar. Ins. Co. v. BITCO Gen. Ins. Corp., 640 S.W.3d 195, 198-99 (Tex. 2022). A court begins its analysis “with the language of the contract because it is the best representation of what the parties mutually intended. Unless the policy dictates otherwise, we give words and phrases their ordinary and generally accepted meaning, reading them in context and in light of the rules of grammar and common usage.” RSUI Indem. Co. v. Lynd Co., 466 S.W.3d 113, 118 (Tex. 2015) (citations omitted).

An insurer owes two “distinct and separate duties”: the duty to defend the insured against lawsuits and the duty to indemnify the insured against claims and judgments. D.R. Horton-Tex., Ltd. v. Markel Int’l Ins. Co., 300 S.W.3d 740, 742 (Tex. 2009). Whether a lawsuit activates an insurer’s duty to defend is controlled by the “eight-corners rule.” State Farm Lloyds v. Richards, 966 F.3d 389, 392 (5th Cir. 2020). “And under Texas’s well-established eight-corners rule, an insurer’s ‘duty to defend is determined by the claims alleged in the petition and the coverage provided in the policy.’ ” Id. (quoting Pine Oak Builders, Inc. v. Great Am. Lloyds Ins. Co., 279 S.W.3d 650, 654 (Tex. 2009)).

*4 The duty to indemnify, by contrast, “is determined by the facts that are eventually ascertained in the underlying lawsuit.” Hartford Cas. Ins. Co. v. DP Eng’g, L.L.C., 827 F.3d 423, 430 (5th Cir. 2016). “This usually means waiting to resolve the duty to indemnify until after a trial in the underlying litigation because facts established at trial determine the duty to indemnify.” Turner v. Cincinnati Ins. Co., 9 F.4th 300, 314 (5th Cir. 2021) (cleaned up).

III. Analysis

Clear Blue does not dispute that it has a duty to defend FIE in the Underlying Lawsuits. Instead, Clear Blue argues that its duty to indemnify FIE against the Underlying Plaintiffs’ claims is limited to $1 million under the Policy because Garcia’s initial collision with the FIE tractor-trailer and Fernandez’s subsequent collision with the FIE tractor-trailer should be considered a single “accident” under the Policy.

The Policy requires Clear Blue to defend and indemnify FIE in covered lawsuits by paying “all sums” FIE “legally must pay as damages” because of bodily injury or property damage “caused by an ‘accident’ and resulting from the ownership, maintenance or use of a covered ‘auto.’ ” Dkt. 12-1 at 25. Clear Blue argues that the following Limit Of Insurance section in the Policy limits the Underlying Plaintiffs’ claims to $1 million in total coverage for all their claims:

Regardless of the number of covered “autos”, “insureds”, premiums paid, claims made or vehicles involved in the “accident”, the most we will pay for the total of all damages and “covered pollution cost or expense” combined resulting from any one “accident” is the Limit Of Insurance for Covered Autos Liability Coverage shown in the Declarations [$1 million].

All “bodily injury”, “property damage” and “covered pollution cost or expense” resulting from continuous or repeated exposure to substantially the same conditions will be considered as resulting from one “accident”.

Id. Dkt. 12-1 at 28-29. “Accident” is defined as “continuous or repeated exposure to the same conditions resulting in ‘bodily injury’ or ‘property damage.’ ” Id. at 33.

The Fifth Circuit analyzed an identical limit of insurance provision in Evanston Ins. Co. v. Mid-Continent Cas. Co., 909 F.3d 143 (5th Cir. 2018). In that insurance coverage dispute, the underlying defendant’s Mack truck negligently struck five different cars in ten minutes on a highway in Houston. Id. at 144. The underlying plaintiffs filed several lawsuits in state court and all entered into multi-million-dollar settlements. Id. The truck’s primary insurer refused to contribute more than $1 million toward settlement of the final three collisions, claiming that they were part of a single “accident” under its policy and that $1 million was the primary insurer’s limit of liability per accident. Id. The excess insurer sued the primary insurer in federal court. Id. The parties stipulated to the facts and filed cross-motions for summary judgment as to whether the final three impacts constituted a single “accident” or separate “accidents” under the policy and Texas law. Id. The district court held that two accidents occurred. On appeal, the Fifth Circuit reversed, finding that there was only one accident. The Fifth Circuit clarified that under Texas law:

the appropriate inquiry is whether there was one proximate, uninterrupted, and continuing cause which resulted in all of the injuries and damage. If so, then there was a single occurrence. If the chain of proximate causation was broken by a pause in the negligent conduct or by some intervening cause, then there were multiple occurrences, even if the insured’s negligent conduct which caused each of the injuries was the same kind of negligent conduct.

*5 Id. at 150. On the stipulated facts⁴ before it, the court concluded that there was only one accident under the policy because:

The ongoing negligence of the runaway Mack truck was the single “proximate, uninterrupted, and continuing cause” of all the collisions. After all, the parties agree that [the driver of the Mack truck] did not apply the brakes at any time from first striking the Accord until all the vehicles came to rest.

Id. at 151.

Clear Blue argues that the Evanston analysis limits its coverage “to a single $1 million limit because the undisputed facts demonstrate that all of the Claimants’ claims result from a single cause and liability triggering event,” that is, the FIE employees’ “failure to back safely into the private driveway, so that the tractor-trailer obstructed all traffic, resulting in both collisions.” Dkt. 12 at 5, 12. Therefore, Clear Blue argues, this Court should issue a declaratory judgment that all of the Underlying Plaintiffs’ claims against FIE are limited to $1 million.

The Court finds that Clear Blue cannot rely on Evanston and its other cited authority because, unlike in those cases, the Underlying Lawsuits in this case remain pending and FIE’s liability has not been conclusively determined. Therefore, it would be premature for the Court to issue a declaratory judgment as to Clear Blue’s duty to indemnify FIE.

A federal court may not issue a declaratory judgment unless an “actual controversy” exists; in other words, there must be a substantial controversy of sufficient immediacy and reality between parties having adverse legal interests. Middle S. Energy, Inc. v. City of New Orleans, 800 F.2d 488, 490 (5th Cir. 1986). “An actual case or controversy exists before the resolution of an insured’s underlying suit concerning the insurer’s duty to defend.” Columbia Cas. Co. v. Georgia & Fla. RailNet, Inc., 542 F.3d 106, 110 (5th Cir. 2008). An insurer’s duty to indemnify, in contrast, “generally cannot be ascertained until the completion of litigation, when liability is established, if at all.” Peachtree Const., 647 F.3d at 253; see also Hartford Cas., 827 F.3d at 430 (stating that “the duty to indemnify typically cannot be adjudicated until there has been a judgment in the underlying suit because facts proven at trial may differ slightly from the allegations”). “This is because, unlike the duty to defend, which turns on the pleadings, the duty to indemnify is triggered by the actual facts establishing liability in the underlying suit, and whether any damages caused by the insured and later proven at trial are covered by the terms of the policy.” Peachtree Const., 647 F.3d at 253.

There are two limited exceptions to the rule that courts consider the duty to indemnify justiciable only after the underlying suit is concluded. First, “the duty to indemnify is justiciable before the insured’s liability is determined in the liability lawsuit when the insurer has no duty to defend and the same reasons that negate the duty to defend likewise negate any possibility the insurer will ever have a duty to indemnify.” Farmers Texas County Mut. Ins. Co. Griffin, 955 S.W.2d 81, 84 (Tex. 1997). Second, courts have allowed parties to “offer extrinsic evidence to prove or negate the insurer’s duty to indemnify if the underlying lawsuit never goes to trial or if trial does not develop the facts necessary to determine policy coverage.” Hartford Cas., 827 F.3d at 430 (citing D.R. Horton-Texas, 300 S.W.3d at 743).

*6 Neither of these exceptions is applicable here. Therefore, Clear Blue’s duty to indemnify FIE is not ripe for adjudication. See Penn-Am. Ins. Co. v. Tarango Trucking, L.L.C., 30 F.4th 440, 448 (5th Cir. 2022) (reversing district court’s ruling that insurer had no duty to indemnify insured in underlying action where underlying suit had not concluded and insurer had a duty to defend, finding that “it was premature for the district court to decide the indemnity issue”); Fed. Ins. Co. v. Northfield Ins. Co., No. 4:14-CV-0262, 2017 WL 11633133, at *22 (S.D. Tex. Nov. 15, 2017) (holding that insurer’s duty to indemnify was not ripe for adjudication where liability had not been conclusively determined in the underlying suit and no exception applied); Canal Ins. Co. v. XMEX Transp., LLC, 1 F. Supp. 3d 516, 530-31 (W.D. Tex. 2014) (holding that under both Texas and Tennessee law “the Court may at this time rule on the duty to defend, based only on the allegations in the state court pleadings and the language of the Policy, but may not rule on the duty to indemnify until the State Court Litigation has concluded”).

Unlike in Evanston, the Underlying Plaintiffs do not stipulate that FIE’s negligence in blocking the highway was the single “proximate, uninterrupted, and continuing cause” of both collisions. Evanston, 909 F.3d at 151. The Underlying Plaintiffs point out that one of the police reports

expressly credits “the inoperative state of the units involved in the previous crash” as a contributing factor in the second crash; the occurrence of this first wreck may have been a new and intervening cause of the second wreck, to say nothing of the potential for contributory negligence by either of the oncoming drivers.

Dkt. 13 at 6 (quoting Dkt. 12-3 at 3). Thus, Defendants argue that in the Underlying Lawsuits,

FIE may contend that the first wreck was proximately caused by the negligence of Anabelia Garcia (the driver of the van that initially struck FIE’s vehicle), that the second wreck was proximately caused by some combination of negligence by Anabelia Garcia and Hector Fernandez (the driver of the truck that subsequently struck FIE’s vehicle), and that these alternative, independent causes interrupt the chain of causation between FIE’s vehicle blocking traffic and the wrecks themselves.

Id. at 7. The state court juries may agree or disagree. But it is those juries who must resolve those fact questions, not this Court on summary judgment. See Hartford Cas. Ins., 827 F.3d at 431 (holding that it was error for the district court to grant summary judgment to insurer on duty to indemnify where the allegations in the underlying lawsuits did not conclusively foreclose that facts adduced at trial may show a duty to indemnify).

Because the Underlying Lawsuits have not been resolved, Clear Blue’s duty to indemnify FIE is not ripe for adjudication and the Court should abate consideration of the duty to indemnify until after the underlying litigation has been concluded. See Northfield Ins., 2017 WL 11633133, at *24 (stating that it is appropriate to stay, rather than dismiss, declaratory judgment actions over an insurer’s duty to indemnify until the litigation concludes) (collecting cases). Accordingly, Clear Blue’s Motion for Summary Judgment should be denied without prejudice to refiling after the underlying litigation has been fully resolved.

IV. Recommendation

This Magistrate Judge RECOMMENDS that the District Court DENY without prejudice Plaintiff Clear Blue Insurance Company’s Motion for Summary Judgment (Dkt. 12).

It is FURTHER ORDERED that this case be removed from the Magistrate Court’s docket and returned to the docket of the Honorable Robert Pitman.

V. Warnings

The parties may file objections to this Report and Recommendation. A party filing objections must specifically identify those findings or recommendations to which objections are being made. The District Court need not consider frivolous, conclusive, or general objections. See Battle v. United States Parole Comm’n, 834 F.2d 419, 421 (5th Cir. 1987). A party’s failure to file written objections to the proposed findings and recommendations contained in this Report within fourteen (14) days after the party is served with a copy of the Report shall bar that party from de novo review by the District Court of the proposed findings and recommendations in the Report and, except on grounds of plain error, shall bar the party from appellate review of unobjected-to proposed factual findings and legal conclusions accepted by the District Court. See 28 U.S.C. § 636(b)(1)(c); Thomas v. Arn, 474 U.S. 140, 150-53 (1985); Douglass v. United Servs. Auto. Ass’n, 79 F.3d 1415, 1428-29 (5th Cir. 1996) (en banc).

*7 SIGNED on January 17, 2023.

All Citations

Footnotes

1 See https://eservices.countyofbrooks.com/eservices/searchresults.page. The Court takes judicial notice of state court dockets under Federal Rule of Evidence 201. Stiel v. Heritage Numismatic Auctions, Inc., 816 F. App’x 888, 892 (5th Cir. 2020) (holding that district court may take judicial notice of state court docket); see also Davis v. Bayless, 70 F.3d 367, 372 (5th Cir. 1995) (taking judicial notice of state court orders).

2 See https://portal-txnueces.tylertech.cloud/PublicAccess/CaseDetail.aspx?CaseID=2681907.

3 Defendants FIE and Marte Fuentes Gomez did not respond to the Motion for Summary Judgment. Also, although FIE was served on February 9, 2022, it has not filed an answer or otherwise responded to this lawsuit.

4 See id. at 144 (“Since the case was submitted below on a stipulation, there is no dispute as to the material facts.”).

End of Document