     Case: 17-20652   Document: 00514851963     Page: 1   Date Filed: 02/26/2019




        IN THE UNITED STATES COURT OF APPEALS
                 FOR THE FIFTH CIRCUIT
                                                          United States Court of Appeals
                                                                   Fifth Circuit

                                 No. 17-20652                    FILED
                                                          February 26, 2019
                                                            Lyle W. Cayce
MID-CONTINENT CASUALTY COMPANY,                                  Clerk

             Plaintiff - Appellee Cross-Appellant

v.

PETROLEUM SOLUTIONS, INCORPORATED,

             Defendant - Appellant Cross-Appellee




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


Before JONES, HAYNES, and OLDHAM, Circuit Judges.
HAYNES, Circuit Judge:
      This is an insurance coverage dispute.         Mid-Continent Casualty
Company (“Mid-Continent”) filed a declaratory judgment action seeking a
declaration that it did not owe coverage for a judgment assessed against its
insured, Petroleum Solutions, Incorporated (“PSI”). Mid-Continent claimed it
did not owe coverage because PSI breached the Cooperation Clause in its policy
by refusing to dismiss its claim against a third party in the underlying lawsuit
and because the judgment was not covered under the policy. At summary
judgment, the district court ruled that the Cooperation Clause applied to PSI’s
third-party claim and that only parts of the judgment were covered. The case
proceeded to trial on whether PSI complied with the Cooperation Clause and
    Case: 17-20652    Document: 00514851963     Page: 2   Date Filed: 02/26/2019



                                 No. 17-20652
whether Mid-Continent waived reliance on the Cooperation Clause. The jury
found for PSI. Both parties appealed. For the reasons set forth below, we
AFFIRM in part, REVERSE in part, and REMAND to enter judgment
consistent with this opinion.
                     I. Factual and Procedural Background
      This case arises from a leak in an underground fuel storage tank. In
1997, PSI constructed and installed an underground fuel tank system for Bill
Head Enterprises (“Head”) underneath its truck stop.           In 2001, Head
discovered fuel had leaked from the system. PSI notified Mid-Continent, with
whom it had a commercial general liability policy (the “Policy”), of Head’s
potential claim against PSI. Mid-Continent retained counsel to investigate the
claim. Mid-Continent and PSI believed that the cause of the leak was a faulty
flex connector manufactured by Titeflex Corporation (“Titeflex”).
      Head sued PSI in February 2006, arguing that PSI was responsible for
the faulty flex connector and the leak. Mid-Continent assumed PSI’s defense
but reserved its rights as to coverage obligations under the Policy. PSI brought
a third-party claim against Titeflex, arguing that Titeflex was strictly liable
under Texas Civil Practice and Remedies Code § 82.002 and seeking
contribution and indemnity. Titeflex then filed a counterclaim against PSI
under § 82.002.
      In June 2008, Mid-Continent told PSI that Titeflex had offered to dismiss
its counterclaim if PSI would dismiss its third-party claim. PSI dismissed
without prejudice its claim against Titeflex.     The following day, Titeflex
advised that it would dismiss its counterclaim only if PSI dismissed its claim
with prejudice. Mid-Continent urged PSI to accept the settlement offer, but
PSI was concerned that doing so would leave it without recourse against




                                       2
    Case: 17-20652      Document: 00514851963        Page: 3    Date Filed: 02/26/2019



                                    No. 17-20652
Titeflex. So PSI rejected the settlement offer. The case proceeded to trial and
the jury returned a verdict in favor of Head and Titeflex. 1
      Mid-Continent then filed a declaratory judgment action in the district
court seeking a determination of the parties’ rights under the Policy. It alerted
PSI that it was denying coverage for the Titeflex judgment because PSI
breached the Cooperation Clause by “fail[ing] to cooperate with Mid-Continent
in the investigation and settlement of the Titeflex counterclaim.”                 Mid-
Continent also told PSI that although the Professional Liability Endorsement
(“PLE”) in the Policy potentially provided coverage for the Titeflex judgment,
Exclusion q of the Endorsement precluded coverage.
      The district court ruled on cross motions for summary judgment, holding
that the PLE did not provide coverage for the Titeflex judgment but that if it
had, Exclusion q would not apply. It concluded that without the PLE, the
Policy provided coverage for only part of the Titeflex judgment.                 It also
concluded that the Cooperation Clause applied to PSI’s claim against Titeflex
but genuine issues of material fact existed about whether PSI complied with
the Cooperation Clause. The case proceeded to trial on this issue and whether
Mid-Continent waived its right to assert the Cooperation Clause. The jury
entered a verdict in PSI’s favor. The district court then entered judgment
partially in PSI’s favor pursuant to its conclusion that only some of the Titeflex
judgment was covered. PSI appealed and Mid-Continent cross appealed.
                                   II. Discussion
      On appeal, PSI argues that the district court erred in refusing to hold
that, as a matter of law, the Cooperation Clause cannot require PSI to settle



      1 PSI appealed the judgments. The Texas Supreme Court reversed and remanded the
Head judgment. Petroleum Sols., Inc. v. Head, 454 S.W.3d 482, 496 (Tex. 2014). On remand,
PSI ultimately prevailed against Head. Thus, only the Titeflex judgment is at issue here.

                                           3
     Case: 17-20652       Document: 00514851963          Page: 4     Date Filed: 02/26/2019



                                       No. 17-20652
its affirmative third-party claim. Mid-Continent argues that there was no
evidence to support the jury’s finding that it waived reliance on the
Cooperation Clause and that the jury instruction about the Cooperation Clause
was an abuse of discretion. 2 Regarding the Titeflex judgment, PSI argues that
the PLE provides coverage for the entire Titeflex judgment and Mid-Continent
challenges the district court’s ruling that Exclusion q of the PLE does not
apply. We address the Cooperation-Clause claims first, followed by the claims
related to the PLE.
       A. Regardless of whether the Cooperation Clause applies to
       affirmative claims, the Cooperation-Clause jury instruction was
       not an abuse of discretion.
       PSI’s Policy contains a Cooperation Clause that requires PSI to
“cooperate with [Mid-Continent] in the investigation or settlement of the claim
or defense against the ‘suit’”. 3 Mid-Continent claimed PSI breached this clause
by refusing to dismiss its claim against Titeflex. The district court refused to
find as a matter of law that the Cooperation Clause does not apply to the
circumstance of an insurer requiring an insured to give up a right against a
third party. At trial, the district court instructed the jury that “PSI complied
with the Cooperation Clause if PSI’s conduct was reasonable and justified
under all the circumstances that existed.” The jury found that PSI complied.
       Mid-Continent offers no law to support its novel and dubious concept
that the Cooperation Clause applies to an insured’s affirmative claims against



       2  Because we conclude the district court’s Cooperation-Clause jury instruction was not
an abuse of discretion, we do not reach Mid-Continent’s waiver argument. We note, however,
that simply sending an insured generic reservation of rights letters such as the ones sent
here is likely insufficient. See Duke v. Hoch, 468 F.2d 973, 979 (5th Cir. 1972) (noting that a
reservation of rights letter was “no more than a general warning”).
       3  The Policy defines “Suit” as a “civil proceeding in which damages because of ‘bodily
injury,’ ‘property damage,’ or ‘personal and advertising injury’ to which this insurance applies
are alleged.” It does not define “Claim.”
                                               4
     Case: 17-20652        Document: 00514851963           Page: 5     Date Filed: 02/26/2019



                                        No. 17-20652
a third party, and the direction of the law in this area is against such a
conclusion. 4     We thus do not endorse that holding by the district court.
However, given that PSI prevailed at trial on this issue, it is unnecessary to
address the legal question further.                 Even assuming arguendo that the
Cooperation Clause could apply to affirmative claims in some theoretical
circumstances, we reject Mid-Continent’s argument that the Cooperation-
Clause jury instruction was an abuse of discretion. See Janvey v. Dillon Gage,
Inc. of Dall., 856 F.3d 377, 388 (5th Cir. 2017) (“Jury instructions are reviewed
for abuse of discretion.”)
       “Reversal is appropriate when the ‘charge as a whole leaves [the court]
with substantial and ineradicable doubt whether the jury [was] properly
guided in its deliberations’ and the challenged instructions, separately or
collectively, ‘affected the outcome of the case.’”               Id. (brackets in original)
(quoting Jowers v. Lincoln Elec. Co., 617 F.3d 346, 352 (5th Cir. 2010)). In
Texas, an insured’s cooperation-clause duties are generally tethered to a
reasonableness standard, and compliance with the clause depends on the
circumstances of a particular case. Am. Nat’l Cty. Mut. Ins. Co. v. Medina, No.
05-16-01062-CV, 2018 WL 4037357, at *3 (Tex. App.—Dallas Aug. 22, 2018, no
pet.) (mem. op.); Frazier v. Glens Falls Indem. Co., 278 S.W.2d 388, 391–92


       4 See, e.g., Lafarge Corp. v. Hartford Cas. Ins. Co., 61 F.3d 389, 397 (5th Cir. 1995)
(suggesting that the insurer cannot use the Cooperation Clause to require the insured to
cooperate in the coverage litigation), overruled on other grounds by Grapevine Excavation,
Inc. v. Md. Lloyds, 35 S.W.3d 1, 5 (Tex. 2000); Bituminous Cas. Corp. v. Tonka Corp., 140
F.R.D. 381, 386 (D. Minn. 1992) (“This court rejects the conclusion that because an insured
agrees to cooperate with the insurance company, in the event he is sued or otherwise makes
a claim under the policy, that the insured has thereby forever contractually waived the
attorney-client privilege.”); Barney v. Aetna Cas. & Sur. Co., 185 Cal. App. 3d 966, 978 (1986)
(“The derogation of plaintiff’s collateral right to counterclaim against Yoakum deprived her
of the policy’s benefits as surely as if Aetna unreasonably had refused to indemnify, defend
or settle at all . . . .”); Rick Virnig, The Insured’s Duty to Cooperate, 6 J. TEX. INS. L. 11, 12
(2005) (“While the Cooperation Clause surely precludes an insured from sabotaging the
insurance company’s interests, the clause does not require the insured to subjugate its own
best interests.”).
                                                5
    Case: 17-20652      Document: 00514851963        Page: 6    Date Filed: 02/26/2019



                                    No. 17-20652
(Tex. Civ. App.—Fort Worth 1955, writ ref’d n.r.e.). Therefore, the “reasonable
and justified” language in the Cooperation-Clause jury instruction did not
improperly guide the jury.          Thus, Mid-Continent’s Cooperation Clause
argument fails.
      B. The PLE covers the entire Titeflex judgment.
      The PLE provides that a subsection (d) should be added to the Insuring
Agreement in the Policy. Subsection (a) of the Insuring Agreement determines
the scope of coverage. It states that Mid-Continent “will pay those sums that
[PSI] becomes obligated to pay as damages because of ‘bodily injury’ or
‘property damage’ to which this insurance applies.” Subsection (d), added by
the PLE, states that “‘Bodily Injury’, ‘Property Damage’ or ‘Money Damages’
arising out of the rendering or failure to render professional services shall be
deemed to be caused by an ‘occurrence.’” The PLE also adds a definition of
“Money Damages” to the “Definition” section of the Policy. It defines “Money
Damages” as “a monetary judgment, award, or settlement.” Finally, the PLE
adds four exclusions to the Policy. Relevant here, the PLE adds “Exclusion q”
for losses caused intentionally by the insured.
      PSI argues that the PLE provides coverage for the Titeflex judgment
because the Titeflex judgment is a monetary judgment arising out of PSI’s
professional services: installation of the fuel tank system at Head’s truck stop.
Mid-Continent disagrees for two reasons. First, it argues that the PLE does
not expand coverage beyond the damages covered under the Insuring
Agreement; instead, it simply creates another definition of “occurrence” by
clarifying that damages “arising out of the rendering or failure to render
professional services” are considered accidental. 5 Second, it argues that the



      5 The Policy defines “occurrence” as “an accident, including continuous or repeated
exposure to substantially the same general harmful conditions.”
                                           6
     Case: 17-20652       Document: 00514851963          Page: 7     Date Filed: 02/26/2019



                                       No. 17-20652
Titeflex judgment did not arise out of PSI’s installation of the fuel tank system
but from PSI’s refusal to dismiss its claim against Titeflex. 6 Mid-Continent’s
arguments are unavailing. 7
       We construe the PLE in conjunction with the rest of the Policy. Am. Fid.
& Cas. Co. v. Bayshore Bus Lines, 201 F.2d 148, 149 (5th Cir. 1953); see Mid-
Continent Cas. Co. v. Bay Rock Operating Co., 614 F.3d 105, 115 (5th Cir.
2010). Applying this principle to Mid-Continent’s interpretation of the PLE is
problematic because, as the district court noted, it “renders superfluous the
definition of ‘occurrence’ based on Money Damages and the addition of Money
Damages to the ‘Definitions’ section of the Policy.” “A basic rule of contract
construction is that the preferred interpretation is one that provides meaning
to every provision and does not read any term out of the contract.” Mesa
Operating Co. v. Cal. Union Ins. Co., 986 S.W.2d 749, 753 (Tex. App.—Dallas
1999, pet. denied). This is particularly important in the insurance context
where, if there is ambiguity, the construction favoring coverage must be
adopted. Mid-Continent Cas. Co. v. Swift Energy Co., 206 F.3d 487, 491 (5th
Cir. 2000) (“In Texas, when an insurance policy is ambiguous or inconsistent,
the construction that would afford coverage to the insured must govern.”). In
addition, under Mid-Continent’s interpretation, the endorsement creates no
additional coverage. But the purpose of the PLE must be to add coverage.
Indeed, we have previously concluded that a Mid-Continent PLE “extend[s]


       6 PSI sought coverage for the Titeflex judgment under its 2001 Policy because the
property damage to Head’s truck stop occurred in 2001. In its briefing, Mid-Continent argued
that because the 2009 Titeflex judgment arose out of PSI’s refusal in 2008 to dismiss its claim
against Titeflex, PSI should have sought coverage under its 2008 or 2009 policy. But Mid-
Continent conceded at oral argument that the policy year does not matter. We conclude the
applicable policy is the 2001 Policy because that is when the property damage occurred, and
the Policy requires that the property damage occur during the policy period.
       7  We review a grant of summary judgment de novo, “using the same standards as the
district court.” K.P. v. LeBlanc, 729 F.3d 427, 435 (5th Cir. 2013) (quoting Sossamon v. Lone
Star State of Tex., 560 F.3d 316, 326 (5th Cir. 2009)).
                                              7
    Case: 17-20652      Document: 00514851963        Page: 8    Date Filed: 02/26/2019



                                    No. 17-20652
coverage to claims related to . . . . professional services.” Davis-Ruiz Corp. v.
Mid-Continent Cas. Co., 281 F. App’x 267, 273 (5th Cir. 2008). Thus, we reject
Mid-Continent’s interpretation of the PLE.
      PSI argues that the “PLE provides coverage for ‘Money Damages’
[(subsection (d))] if there is ‘property damage’ [(subsection (a))] during the
policy period . . . arising out of ‘professional services’ that are deemed to be an
‘occurrence’ [(subsection (d))].”     We do not need to decide whether PSI’s
interpretation is correct or even reasonable. If it is neither, then we would
have to conclude that the PLE and the Policy are in conflict. In that case, the
PLE and its more specific provisions must control. See JAW The Pointe, L.L.C.
v. Lexington Ins. Co., 460 S.W.3d 597, 605 n.7 (Tex. 2015) (noting that an
endorsement “that provides specific coverage” trumps an exclusion in the
policy); see also Bay Rock Operating Co., 614 F.3d at 115. Thus, regardless of
whether PSI’s interpretation is correct or the PLE and the Policy conflict, the
PLE provides coverage for the entire Titeflex judgment.
      Examining the PLE, we conclude that it extends coverage when PSI has
rendered professional services (or failed to do so) that result in “Bodily Injury,”
“Property Damage,” or “Money Damages.” “Money Damages” is defined as a
“monetary judgment, award, or settlement.” This is a broader definition than
that contained in subsection (a): “damages because of ‘bodily injury’ or
‘property damage.’” Thus, we conclude that the PLE provides for a broader
range of damages than the common-law definition of “damages” when those
damages arise out of professional services.                Mid-Continent does not
meaningfully challenge that the entire Titeflex judgment 8 is a monetary


      8 As we noted above, Titeflex’s claim against PSI in the underlying lawsuit was for
indemnification under Texas Civil Practice and Remedies Code § 82.002(a). Titeflex also
sought attorney’s fees under § 82.002(g). When Titeflex won its suit against PSI, the
judgment included damages under § 82.002(a) and attorney’s fees under § 82.002(g), but it
did not segregate the one from the other. The district court concluded that § 82.002(a)
                                           8
     Case: 17-20652      Document: 00514851963         Page: 9    Date Filed: 02/26/2019



                                      No. 17-20652
judgment, or that installation of the fuel tank system qualifies as PSI’s
professional services.
       Mid-Continent’s second argument, that the Titeflex judgment arose out
of PSI’s refusal to dismiss its claim rather than its professional services, lacks
merit. We do not need to reach the boundaries of “arising out of” in the PLE
because the Titeflex judgment is directly related to the leak in the fuel tank
system that PSI installed; if there had been no leak, Head would not have sued
and there would have been no need for PSI and Titeflex to assert claims against
each other. Therefore, we conclude that the PLE provides coverage for the
entire Titeflex judgment and the district court erred in its summary judgment
holding that it does not.
       Even if the PLE covers the Titeflex judgment, Mid-Continent urges us to
conclude that Exclusion q in the PLE precludes coverage. Exclusion q denies
coverage for “[l]oss caused intentionally by or at the direction of the insured
. . . .” Mid-Continent bears the burden of establishing that the exclusion
applies. See Utica Nat’l Ins. Co. of Tex. v. Am. Indem. Co., 141 S.W.3d 198, 204
(Tex. 2004). We conclude Exclusion q does not apply.
       The parties agree that Exclusion q concerns the underlying conduct
giving rise to the claim but dispute the relevant conduct: Mid-Continent argues
it is PSI’s refusal to settle the Titeflex claim, and PSI argues it is the fuel leak.
Mid-Continent never argues that PSI intended the fuel leak, but even if Mid-
Continent is correct that the relevant underlying conduct is PSI’s refusal to



damages were covered under the Policy (not the PLE) but § 82.002(g) attorney’s fees were not
“damages,” utilizing the district court’s perception of that term as generally applied under
Texas law, rather than a policy-specific definition. PSI appeals this ruling, but we do not
reach its arguments since we conclude that the PLE covers the entire Titeflex judgment, as
a “monetary judgment” under the broader definition provided by the Policy itself. We thus
do not need to decide whether the term “damages,” by itself, would encompass the entire
Titeflex judgment.

                                             9
    Case: 17-20652    Document: 00514851963      Page: 10   Date Filed: 02/26/2019



                                  No. 17-20652
settle the Titeflex claim, there is no genuine issue of material fact as to whether
PSI caused the Titeflex judgment intentionally.
      The Texas Supreme Court has held under a substantially similar
exclusion that “[t]he exclusion requires intentional damage, not just
intentional conduct.” Tanner v. Nationwide Mut. Fire Ins. Co., 289 S.W.3d 828,
829 (Tex. 2009). Thus, “the dispositive inquiry is whether the insured intended
to inflict damage or injury. To forfeit coverage, the insured must intend to
harm, not merely intend to act.” Id. at 833; see State Farm Fire & Cas. Co. v.
S.S., 858 S.W.2d 374, 378 (Tex. 1993) (“[A]n insured intends to injure or harm
another if he intends the consequences of his act, or believes that they are
substantially certain to follow.” (citing RESTATEMENT (SECOND) OF TORTS § 8A
(1965))).
       “Ordinarily, whether an insured intended harm or injury to result from
an intentional act is a question of fact.” S.S., 858 S.W.2d at 378. But here,
there are no genuine issues of material fact as to whether PSI intended a
judgment to be entered against it or whether PSI believed it was substantially
certain a judgment would be entered against it if it refused the Titeflex
settlement. “[T]he mere knowledge and appreciation of a risk—something
short of substantial certainly—is not intent.” Id. (quoting W. PAGE KEETON ET
AL., PROSSER AND KEETON ON THE LAW OF TORTS         § 8, at 35–36 (5th ed. 1984)).
      PSI claims that, far from being substantially certain that a judgment
would be entered against it if it refused the Titeflex settlement, PSI’s appellate
counsel repeatedly advised it that Titeflex likely would not succeed on its
counterclaim. Mid-Continent points to the fact that PSI knew its claim against
Titeflex was unlikely to succeed. But the issues with PSI’s claim are due to
Mid-Continent’s actions, not PSI’s; Mid-Continent’s expert lost the alleged
faulty flex connector that Titeflex manufactured and yet it was Mid-Continent
that decided to assert a claim against Titeflex. Regardless, these problems
                                        10
    Case: 17-20652       Document: 00514851963         Page: 11     Date Filed: 02/26/2019



                                      No. 17-20652
largely concern the viability of PSI’s claim against Titeflex, not Titeflex’s
counterclaim. Thus, the district court did not err in concluding that Exclusion
q does not apply. Because Exclusion q does not bar coverage, Mid-Continent
owes PSI coverage for the entire Titeflex judgment. We thus reverse the
district court’s conclusion that the PLE does not cover the entire Titeflex
judgment and hold that it does. 9
                                        III. Conclusion
       For the reasons stated above, we AFFIRM in part, REVERSE in part,
and REMAND to the district court to enter judgment consistent with this
opinion.




       9 Because PSI prevailed below, the district court awarded PSI attorney’s fees pursuant
to § 38.001 of the Texas Civil Practice and Remedies Code. Mid-Continent argues this was
error because PSI should not have prevailed. Because we agree PSI is the prevailing party,
Mid-Continent’s argument fails.
                                             11
