Martin Marietta Matl v. St Paul Fire & Mrne

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT _______________

m 01-10744 Summary Calendar _______________

MARTIN MARIETTA MATL; MARTIN MARIETTA MATERIALS SOUTHWEST, LTD., FORMERLY KNOWN AS MAROCK, INC.; CONNIE SPRADLEY,

Plaintiffs-Appellants,

VERSUS

ST. PAUL FIRE AND MARINE INSURANCE COMPANY, ET AL.,

Defendants,

ST. PAUL GUARDIAN INSURANCE COMPANY,

Defendant-Appellee.

_________________________

Appeal from the United States District Court for the Northern District of Texas m 3:00-CV-2585-X _________________________

January 31, 2002

Before JONES, SMITH, and JERRY E. SMITH, Circuit Judge:* EMILIO M. GARZA, Circuit Judges. * Pursuant to 5TH CIR. R. 47.5, the court has (continued...)

St. Paul Fire and Marine Insurance litigation.2 The parties filed cross-motions for Company (“St. Paul”) insured Martin Marietta summary judgment. Matl (“Marock”) and Connie Spradley under a commercial general liability policy that cov- The district court granted St. Paul’s motion ered liability and legal expenses stemming from for summary judgment, concluding that Trin- an “event” or “accident” but did not define ity’s petition in the state suit did not allege an “accident.” Marock argues that its diversion “accident,” which would be necessary to trig- of water fro m Big Sandy Creek without a ger St. Paul’s duty to defend. The court held water permit was an “accident” that resulted in that the same facts that negated the duty to de- unexpected property damage to downstream fend also negated the duty to indemnify. On users. The district court held that the appeal, Marock argues that Trinity’s state peti- deliberate, unlawful act was not an accident, tion alleges an “event” as defined by the because property damage was the natural and policy. probable result. Finding no error, we affirm. II. I. Under Texas law, general principles of con- Marock owned a facility that adjoined Big tract interpretation apply to insurance policies. Sandy Creek. St. Paul provided primary gen- Am. States Ins. Co. v. Bailey, 133 F.3d 363, eral liability coverage for Marock and its offi- 369 (5th Cir. 1999). State and federal courts cers. Trinity Materials, Inc. (“Trinity”), which follow the “complaint allegation” or “eight held senior water rights to use water from the corners” rule when determining an insurer’s creek, operated a sand and gravel company duty to defend.3 If the petition does not allege downstream of Marock. facts within the scope of coverage, an insurer is not legally required to defend a suit brought The complaint alleges that Marock, without against its insured. Trinity Universal Ins. Co. a valid water permit, diverted the creek to v. Cowan, 945 S.W.2d 819, 821 (Tex. 1997). dredge, wash, and screen sand and gravel for We construe the pleadings in favor of the in- on-site construction, depriving Trinity of water sured. Heyden, 387 S.W.2d at 26. that it needed to operate. In a suit in state court against Marock, Trinity alleged that the 2 diversion had caused production and sales This statement of the facts is taken almost losses. Marock filed the instant federal action, verbatim from the district court’s opinion. Martin seeking a declaration that St. Paul has a duty Marietta Materials Southwest, Ltd. v. St. Paul to defend and indemnify it in the state Guardian Ins. Co., 145 F. Supp. 2d 794, 796 (N.D. Tex. 2001). The parties agree that the dis- trict court’s statement of facts is accurate. Appellant’s Br. at 5 (stating that the only flaw is the conclusion that Marock acted “intentionally”); Appellee’s Br. at 2-3 (accepting district court’s statement). * (...continued) 3 determined that this opinion should not be Potomac Ins. Co. v. Jayhawk Med. published and is not precedent except under the Acceptance Corp., 198 F.3d 548, 550 (5th Cir. limited circumstances set forth in 5TH CIR. R. 2000); Heyden Newport Chem. Corp. v. S. Gen. 47.5.4. Ins. Co., 387 S.W.2d 22, 24, 26 (Tex. 1965).

The general commercial liability policy pro- that commission of an intentional tort bars tects Marock from liability for an “event,” finding an accident only for the “natural and which the policy defines as “an accident, in- probable consequence” of the action.5 In cluding continuous or repeated exposure to Lindsey, 997 S.W.2d at 155, the court cited substantially the same general harmful both lines of cases with approval. conditions.” Texas and federal courts applying Texas law to insurance contracts often have Unsurprisingly, St. Paul argues that the in- considered the definition of “accident.” tentional and unlawful acts should bar finding an accident. Marock, on the other hand, rea- The Texas Supreme Court most recently sons that intentional acts bar a finding of acci- summarized the test for determining whether dent only for the natural and probable conse- an insured’s actions constitute an accident in quences of the act. Marock contends that un- Mid-Century Ins. Co. v. Lindsey, 997 S.W.2d predictable and unforeseeable consequences 153, 155 (Tex. 1999), explaining that “both are covered accidents. the actor’s intent and the reasonably foreseeable effect of his conduct bear on the We need not resolve this tension. determination of whether an occurrence is Regardless of whether intent is dispositive, accidental.” The court described, in an Texas courts have been extremely reluctant to ambiguous passage, the importance of the declare the consequences of an unlawful act as insured’s intent, stating that “voluntary and accidental. Trinity Universal, 945 S.W.2d at intentional conduct is not an accident just because ‘the result or injury may have been unexpected, unforeseen, and unintended.’” Id. 4 (...continued) (citation omitted). The court, however, went damage may be.”); Argonaut Southwest Ins. Co. v. on to say that “the mere fact that ‘an actor Maupin, 500 S.W.2d 633, 635 (Tex. 1973) intended to engage in the conduct that gave (unknowing trespass classified as an intentional rise to the injury’ does not mean that the injury tort that gave rise to liability). was not accidental.” Id. (citation omitted). 5 Meridian Oil Prod., Inc. v. Hartford Accident These paradoxical statements reflect an un- & Indem. Co., 27 F.3d 150, 152 (5th Cir. 1994) derlying tension in Texas law. Some Texas (considering recklessness of oil rig operator’s be- courts have held that the insured’s commission havior leading to spill and natural consequences of of an intentional tort or intentionally unlawful spill); Trinity Universal, 945 S.W.2d at 827-28 act bars finding an accident, regardless of the (considering relevant but not dispositive the in- consequences.4 Other Texas courts have held sured’s intent to make illegal copies of photograph and violate plaintiff’s privacy); Hartrick v. Great Am. Lloyds Ins. Co., No. 01-99-00215, 2001 WL 870072, at *5 (Tex. App.SSHouston [1st Dist.] 4 Federated Mut. Ins. Co. v. Grapevine 2001, no pet.) (“Intent or lack of intent is not Excavation, Inc., 197 F.3d 720, 723 (5th Cir. dispositive of coverage.”); Collier v. Allstate 1999) (“[D]amage that is the natural result of County Mut. Ins. Co., No. 2-00-116-CV, 2001 voluntary and intentional acts is deemed not to WL 629307, at * 5 (Tex. App.SSFort Worth 2001, have been caused by an occurrence, no matter how no pet.) (stating that objective natural consequence unexpected, unforeseen, and unintended that standard applies to the results of an intentional (continued...) act).

827-28. Where the type but not the extent of First, Marock ignores the distinction that the damages is predictable, Texas courts refuse Texas law defining “accidents” makes between to classify the act or its effects as an negligence and intentional torts. Marock cites “accident.”6 out-of-state cases for the proposition that a foreseeability test would eliminate insurance Marock deliberately diverted the water for for negligence.7 Texas courts, however, have the construction project and did so without been more willing to classify the consequences water rights, which made its action unlawful. as improbable and covered in the case of the Marock faces a heavy burden to show that the insured’s simple negligence; those courts have consequences of its actions were so been less likely to find an accident and unpredictable or bizarre as to make them coverage where the insured has acted accidental. intentionally; they have been least likely to find accident and coverage where the insured The district court correctly held that when deliberately has violated the law.8 an upstream user usurps a downstream user’s water rights, the upstream user should foresee Favoring coverage for negligence rather damage to the downstream user. Marock than intentional torts makes good sense. An could foresee that diversion would harm insurance company is less likely to contract to downstream commercial users, even if it did protect the insured from the natural and not know the particular effects; that it did not probable consequences of his deliberate foresee the particular harm is irrelevant. Mar- decision to break the law. That would create ock’s diversion and its consequences were not a enormous moral hazard. An insurance an “accident” within the meaning of the policy. company can, however, much more easily monitor and assist an insured who is seeking to Marock argues that by linking the term “ac- avoid simple negligence.9 The Texas courts cident” to foreseeability, the district court have interpreted liability contracts in the way made liability policies useless. Marock avers most likely to fulfill the parties’ intent. that because foreseeability is an element of many torts, the petition often will allege fore- seeability and will prevent the insured from 7 Appellant’s Reply Br. at 4-5 (citing Sheets v. claiming coverage. This argument is premised Brethren Mut. Ins. Co., 679 A.2d 540 (Md. 1996); on a misunderstanding of Texas insurance and City of Carter Lake v. Aetna Cas. & Sur. Co., 604 tort law. F.2d 1052 (8th Cir. 1979)). 8 Compare, e.g., Mass. Bonding & Ins. Co. v. Orkin Exterminating Co., 416 S.W.2d 396, 400- 6 Meridian Oil, 27 F.3d at 152 (describing 01 (Tex. 1967) (negligent application of pollution as “natural and probable” consequence of pesticides); Meridian Oil, 27 F.3d 152 (reckless reckless oil rig operation even though specific im- failure to take precautions to keep oil rig from pact might not be foreseeable); Wessinger v. Fire leaking); Maupin, 500 S.W.2d at 635 (trespass). Ins. Exch., 949 S.W.2d 834, 841 (Tex. App.SSDallas 1997, no pet.) (“Simply because the 9 Seth J. Chandler, Visualizing the Moral degree of injury suffered may have been great does Hazard, 1 CONN. INS. L.J. 97, 135-36 (1995) not make the specific type of injury alleged any less (describing limits on liability coverage as a means a natural result of the act.”). for insurers to reduce moral hazard).

Second, regardless of the competing policy Trinity’s allegations of negligence, the state arguments, Texas courts have chosen to petition alleges that negligence arises from impose a requirement that to count as an Marock’s deliberate, unlawful acts. Those un- “accident,” intentional torts must lead to an derlying acts drive our “accident” analysis, as unforeseeable type of harm. Because this case described above. is brought pursuant to diversity jurisdiction, we have an obligation to apply Texas law as III. state courts would apply it, regardless of the The district court held that St. Paul did not policy consequences.10 have the duty to defend or indemnify. Martin Marietta, 145 F. Supp. 2d at 800. On appeal, Marock argues that because Trinity alleges Marock argues that the district court negligence in the state petition, we should con- prematurely resolved the question of sider Marock’s diversion non-intentional. In indemnification. Texas, negligent acts that create improbable consequences are accidents.11 Texas courts In Farmers Tex. County Mut. Ins. Co. v. also have held, however, that the facts, rather Griffin, 955 S.W.2d 81, 84 (Tex. 1997), the than legal theories alleged in the state petition, court held that a trial court can resolve the in- should determine the insured’s intent. Where demnification question at summary judgement a state petition alleges facts that could support if “no set of facts could be developed” to cre- theories of both negligence and intentional ate a cause of action for indemnification. The torts, Texas courts will consider the insured’s court held that the petition’s allegations of a actions intentionally unlawful.12 Despite drive-by shooting never could state a claim for an “accident.” Id.

10 The duty to defend is broader than the duty Klaxon Co. v. Stentor Elec. Mfg. Co., 313 to indemnify. State Farm Lloyds v. Borum, 53 U.S. 487, 497 (1941) (stating that “the proper function of [a] federal court is to ascertain what the S.W. 3d 877, 889 (Tex. App.SSDallas 2001, state law is, not what it ought to be”). pet. denied). In most cases in which the un- derlying petition does not state factual 11 E.g., Harken Exploration Co. v. Sphere allegations sufficient to create a duty to Drake Ins. PLC, 261 F.3d 466, 474 (5th Cir. 2001) (concluding that negligent oil leak that con- 12 taminated water, killed cattle, and destroyed land (...continued) had unpredictable effects that could be considered ligence claims should be considered an intentional accidental); Hartford Cas. v. Cruse, 938 F.2d 601, tort for purposes of defining as an accident); Fol- 604-05 (5th Cir. 1991) (classifying extensive dam- som Investments, Inc. v. Am. Motorists Ins. Co., age from negligent failure properly to level house 26 S.W.3d 556, 559 (Tex. App.SSDallas 2000, no as accidental); Mass. Bonding, 416 S.W.2d at 400- pet.) (stating that “negligence that is related to and 01 (holding that negligent application of pesticide interdependent on claims of intentional conduct that had cumulative, toxic effects was an accident). does not constitute” an accident); King v. Dallas Fire Ins. Co., 27 S.W.3d 117, 123 (Tex. 12 Am. States Ins. Co. v. Bailey, 133 F.3d 363, App.SSHouston [1st Dist.] 2000, pet. granted) 371-72 (5th Cir. 1998) (stating that alleged sexual (same); Freedman v. Cigna Ins. Co. of Texas, 976 misconduct giving rise to intentional tort and neg- S.W.2d 776, 779 (Tex. App.SSHouston [1st Dist.] (continued...) 1998, no pet.) (same).

defend, there is no duty to indemnify. Id.

The district court held that the state petition could never state a claim for an accident. Marock does not isolate a single fact or legal theory that would transform the deliberate di- version of water into an “accident.” We can- not envision such a development at trial, so summary judgment was appropriate.

AFFIRMED.