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Aggreko, L.L.C. v. Chartis Specialty Insurance Co.

United States Court of Appeals, Fifth Circuit

November 11, 2019

AGGREKO, L.L.C., Plaintiff
v.
CHARTIS SPECIALTY INSURANCE COMPANY, formerly known as AIG Specialty Insurance Company, Defendant INDIAN HARBOR INSURANCE COMPANY, Plaintiff - Appellant Cross-Appellee
v.
THE GRAY INSURANCE COMPANY, Defendant-Appellee Cross-Appellant

          Appeals from the United States District Court for the Eastern District of Texas

          Before JOLLY, COSTA, and ENGELHARDT, Circuit Judges.

          KURT D. ENGELHARDT, Circuit Judge.

         Indian Harbor Insurance Company ("Indian Harbor"), the plaintiff in one of two consolidated lawsuits pending below, appeals the district court's grant of summary judgment in favor of defendant The Gray Insurance Company ("Gray"). Gray, in turn, "conditionally" appeals the district court's decision to apply Texas law, instead of Louisiana law, to the issues before it, asking us to only consider its appeal if we conclude that we are unable to affirm the summary judgment under Texas law. For the reasons set forth below, we AFFIRM.

         I.

         The consolidated lawsuits in this matter arise out of fatal injuries suffered by James Andrew Brenek, II ("Brenek") when he was electrocuted by an electrically-energized generator housing cabinet on a rig in Jefferson County, Texas. At the time of his accident, Brenek was employed by and performing work for Guichard Operating Company, L.L.C. ("Guichard"), a drilling subcontractor located in Crowley, Louisiana. Guichard had leased the generator involved in the incident from Aggreko, L.L.C. ("Aggreko"), a Delaware company doing business in both Louisiana and Texas. The rental agreement between Guichard and Aggreko required Guichard to maintain a commercial liability insurance policy during the lease period that would cover damages arising out of use of the leased equipment and recognize Aggreko as an additional insured.

         On the date of Brenek's accident-July 27, 2014-Guichard had in place a primary commercial liability policy issued by Gray ("the Gray Policy") and an excess commercial liability policy issued by Chartis Specialty Insurance Company, also known as "ASIC" ("ASIC"). Aggreko had in place a primary insurance policy issued by Indian Harbor. Relevant to the issues before us, Gray is a Louisiana corporation that has its principal place of business in Metairie, Louisiana and regularly conducts business in Texas. Indian Harbor is a Delaware corporation with its principal place of business in Stamford, Connecticut.

         Following their son's death, Brenek's parents ("the Breneks") filed a tort suit in Texas state court against Aggreko and Rutherford Oil Corporation ("Rutherford"), the owner of the rig on which Brenek's accident occurred.[1]Thereafter, Gray agreed, in response to demands by Aggreko and Rutherford, to indemnify and defend them as additional insureds under the Gray policy.[2]ASIC, on the other hand, advised Aggreko, upon learning of the Breneks' lawsuit, that Aggreko did not qualify as an additional insured under the policy it issued to Guichard. In response, Aggreko filed suit against ASIC in Texas state court, seeking declaratory relief with respect to ASIC's alleged obligations to Aggreko under its policy. ASIC then removed the suit to the United States District Court for the Eastern District of Texas.

         Despite Aggreko's lawsuit against ASIC, Gray maintained its defense of Aggreko with respect to the lawsuit filed by the Breneks. The Gray policy had a liability limit of $1, 000, 000, subject to a $50, 000 self-insured retention. On February 8, 2017, Gray and the Breneks reached two separate agreements regarding the Breneks' claims against Rutherford and Aggreko. With respect to Rutherford, Gray agreed to pay the Breneks $50, 000 in exchange for a full and complete release of any and all claims that the Breneks had against Rutherford arising out of their son's accident and death. With respect to Aggreko, Gray agreed to pay the Breneks $950, 000 on behalf of Aggreko in exchange for the Breneks' agreement to execute any subsequent judgment obtained by the Breneks as to Aggreko only against available insurance. On the same date, Gray issued to the Breneks and their attorneys two checks- one in the amount of $50, 000, and one in the amount of $950, 000. On March 3, 2017, the Breneks executed a "Release and Settlement Agreement" and a "Covenant Not To Execute Agreement" ("Covenant Not To Execute") setting forth the formal terms of the respective agreements they entered into with Gray.

         Consistent with the February 8 agreement between Gray and the Breneks regarding Aggreko, the Covenant Not To Execute states that, by executing the agreement, the Breneks "jointly and severally, promise[], agree[] and covenant[] that they shall not seek to and will not execute on any Judgment obtained in their favor and against Aggreko in the Lawsuit save and except to the extent they can recover the Judgment from any insurance company which provides coverage to Aggreko." The Covenant Not to Execute further provides that the Breneks would "enforce any and all such Judgment against the available insurance only, and not against the assets of Aggreko or its respective present or former directors, officers, employees, [or] parent companies." Additionally, the agreement indicates that the Breneks "acknowledge[] and agree[] that Aggreko retains whatever rights it may have under the law to reduce the amount of any damage award against it by way of settlement credit, proportionate responsibility, Tex. Civ. Prac. & Rem. Code Chapter 33, the One-Satisfaction Rule, or otherwise."

         Taking the position that it had exhausted its policy limit and its obligation to Aggreko, Gray notified Aggreko by letter dated February 9, 2017 that it intended to withdraw its defense in the Breneks' pending state lawsuit 30 days from the date of the letter. In support of its position, Gray pointed to the following language from its policy:

         SECTION I-COVERAGES

         COVERAGE A. BODILY INJURY AND PROPERTY DAMAGE LIABILITY

         1. Insuring Agreement.

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies . . . . But . . .
2. Our right and duty to defend end when we have used up the applicable limit of insurance in payment of judgments or settlements under Coverage[] A . . . .

         The Gray policy does not define the terms "judgments" and "settlements." Noting that it had paid the $1, 000, 000 policy limit "in settlement regarding the Brenek occurrence," Gray advised that it had no further obligations under the policy.

         Gray subsequently denied requests of Aggreko and Indian Harbor to maintain its defense of Aggreko. As a result, Indian Harbor instituted a declaratory action, also in the United States District Court for the Eastern District of Texas, seeking, among other things, recognition that Gray maintained a duty to defend Aggreko. Shortly thereafter, the district court issued an order consolidating Aggreko's lawsuit against ASIC with Indian Harbor's lawsuit against Gray.

         After consolidation, Gray filed a motion for summary judgment in which it sought a declaration that it had exhausted its policy limits and no longer had a duty to defend or indemnify Aggreko. ASIC and Indian Harbor filed memoranda in opposition to Gray's motion, while Aggreko filed a response stating that its substantive arguments would be included in Indian Harbor's memorandum. Indian Harbor also, in turn, filed a cross-motion for summary judgment in which it asked the district court to determine that Texas law applies to the issues raised in the consolidated lawsuits; that the Covenant Not to Execute did not constitute a "settlement" of any of the Breneks' claims against Aggreko under Texas law and, therefore, that Gray had not exhausted its policy limit with respect to such claims; that Gray had an ongoing duty to defend Aggreko in the Breneks' lawsuit; and that Gray was required to reimburse Indian Harbor for any costs spent in Aggreko's defense. Gray filed a memorandum in opposition to Indian Harbor's motion.

         The district court granted Gray's motion and denied Indian Harbor's motion, except that it determined, in accordance with Indian Harbor's request, that Texas law-as opposed to Louisiana law-was applicable to the issues before it. Specifically, the court held that:

[A]s a matter of law, . . . (1) Texas law is controlling for both the Gray Policy and the Covenant Not to Execute; and (2) Gray's payment of the policy limits and the Breneks' execution of the Covenant Not to Execute against Aggreko and the release of Rutherford terminates Gray's duty to defend and indemnify its insureds.

         Indian Harbor now appeals the district court's order. As noted above, Gray asks this court to affirm the district court's ruling but submits a "conditional" cross-appeal, urging us to reverse the district court's conclusion that Texas law applies to the issues at hand and affirm the district court's grant of summary judgment in favor of Gray by applying Louisiana law in the event that we conclude the judgment cannot be maintained under Texas law.

         II.

         This court reviews choice-of-law determinations de novo but reviews the district court's underlying factual determinations for clear error. Mumblow v.Monroe Broadcasting, Inc., 401 F.3d 616, 620 (5th Cir. 2005); see also Nat'lUnion Fire Ins. Co. of Pittsburgh, Pa. v. Am. Eurocopter Corp., 692 F.3d 405, 408 (5th Cir. 2012) ("A district court's choice-of-law determination is a legal conclusion."). We also review a district court's interpretation ...


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