Motion for Rehearing Granted, Opinion of December 8, 2011 Withdrawn, Reversed
and Remanded, and Opinion filed April 3, 2012.




                                           In The

                           Fourteenth Court of Appeals
                                   ___________________

                                    NO. 14-10-00816-CV
                                   ___________________

            UNITED STATES FIDELITY & GUARANTY CO., Appellant

                                                V.

    COASTAL REFINING & MARKETING, INC., COASTAL OFFSHORE
INSURANCE LIMITED, AND LEXINGTON INSURANCE COMPANY, Appellees


                        On Appeal from the 129th District Court
                                Harris County, Texas
                          Trial Court Cause No. 2000-43872


                                       OPINION

       We grant appellees’ motion for rehearing, withdraw our opinion issued December
8, 2011, and issue this opinion in its place.

       In this subrogation case, appellant United States Fidelity & Guaranty Co.
(“USF&G”) challenges a judgment requiring it to pay the limits of its primary and
umbrella policies to its insured and two co-insurers. Although we do not agree that the
subrogation claims are barred as USF&G contends or that the trial court abused its
discretion in awarding attorney’s fees, USF&G is correct in asserting that a portion of the
loss should have been prorated among the excess insurers. We therefore reverse the
judgment and remand the case to the trial court with instructions to reduce the damage
award.       However, because the parties stipulated that the amount of attorneys’ fees
requested was reasonable and necessary, we affirm the trial court’s award of $1,039,054.92
in attorney’s fees and costs and do not reverse and remand the attorneys’ fees award for
recalculation in light of the reduced damage award.

                         I. FACTUAL AND PROCEDURAL BACKGROUND

         The origins of this insurance dispute are recounted in Coastal Refining &
Marketing, Inc. v. United States Fidelity & Guaranty Co., 218 S.W.3d 279 (Tex.
App.—Houston [14th Dist.] 2007, pet. denied) (sub. op.). Briefly, Weaver Industrial
Service, Inc. contracted with Coastal Refining & Marketing, Inc. to maintain Coastal’s
equipment, and Weaver agreed to designate Coastal as an additional insured on insurance
policies providing coverage for all claims arising out of Weaver’s work. Id. at 281–82.
Through Weaver, Coastal is an additional insured on two policies issued by USF&G. One
is a commercial general liability policy providing $1 million of primary coverage per
occurrence, and the other is an umbrella policy providing $5 million of excess coverage.

         Coastal also maintained its own primary and excess coverage. The Reliance
National Indemnity Company provided $500,000 in primary coverage after payment of a
$500,000 self-insured retention. 1           Above this, Coastal’s captive insurance company,
Coastal Offshore Insurance Limited (“COIL”), provided $1 million in excess coverage.
In addition, Coastal had excess coverage of $10 million through a policy from Lexington
Insurance Company. The Lexington policy was not excess to a specific policy, but
instead provided coverage for losses in excess of an “underlying amount” of $2 million.



         1
          Because it had a deductible equal to the policy limits, this insurance is a “fronting” policy. In
effect, Coastal was responsible for paying the first $500,000 of any losses through its self-insured retention,
after which Reliance would pay for $500,000 of the loss, and Coastal would reimburse Reliance for that
amount through the $500,000 deductible.
                                                      2
All of the excess policies covering Coastal contained clauses dealing with “other valid and
collectible insurance.”

       In May 1999, there was an explosion on Coastal’s property, and Weaver’s employee
Rolando Lopez was injured. Id. at 282. The Lopez family sued Coastal and its parent
company, Coastal Corporation, for negligence and gross negligence (the “Lopez suit”).
Id. Coastal initially hired its own defense counsel and expended $161,363 of its $500,000
self-insured retention in defending against the suit.       Eventually, however, it asked
Lexington to assume defense of the case and tendered the remaining $338,637 of the
self-insured retention, the $500,000 limits of the Reliance policy, and the $1 million of
excess coverage provided by COIL. Lexington settled the claims against Coastal and
Coastal’s parent corporation for a total of $7 million. The terms of the settlement
agreement did not disclose the extent to which the funds were expended to settle the claims
against Coastal, as opposed to settling the claims against Coastal’s parent corporation.

       Coastal’s counsel did not inform USF&G about the Lopez suit until about two
weeks before the case settled. After learning of the settlement, USF&G sued Coastal,
seeking a declaration that it had no duty to indemnify Coastal for the settlement. Id. at
283. COIL and Lexington intervened. Id. The trial court initially granted summary
judgment in USF&G’s favor, but we reversed and remanded because USF&G failed to
establish that it was actually prejudiced by the late notice of suit or that Coastal failed to
cooperate in its defense. Id. at 298.

       On remand, the parties agreed to submit certain issues to the jury, but stipulated that
the priority of coverage was a question of law to be submitted to the trial court. The jury
found that (a) all of the $7 million settlement was expended to settle the claims against
Coastal and none of this amount was spent to settle the claims against Coastal’s parent
corporation; (b) USF&G was not prejudiced by the late notice of the Lopez suit; (c) Coastal
did not fail to cooperate with USF&G; (d) Coastal, COIL, and Lexington (collectively,


                                              3
“the Coastal parties”) did not voluntarily pay to settle the Lopez suit without USF&G’s
consent; and (e) USF&G did not deny coverage for the Lopez claim.

       After receiving the verdict, the parties filed competing motions to disregard certain
findings. Coastal asked the trial court to disregard the jury’s finding that USF&G did not
deny coverage, and argued that the finding was both immaterial and contrary to the
conclusive evidence that USF&G constructively denied coverage.             USF&G did not
specifically oppose the request; moreover, it acknowledged that “even if USF&G had lost
on that issue, the result would not change.” The trial court granted the request to disregard
the finding without stating the ground on which the ruling was based. USF&G asked the
trial court to disregard the jury’s finding that the entire $7 million settlement was expended
to obtain the release of the claims against Coastal. The trial court impliedly denied the
motion. On appeal, USF&G does not challenge the disposition of either motion.

       The parties addressed the priority of coverage by filing competing motions for
judgment. All agreed that if the Coastal parties were entitled to recover from USF&G at
all, then the first $1 million of the loss was covered under USF&G’s primary policy, and
the next $500,000 of the loss was covered under Reliance’s primary policy. The Coastal
parties argued that USF&G’s $5 million excess policy was triggered next, and that COIL’s
$1 million excess policy would be triggered only when USF&G’s excess policy was
exhausted. According to the Coastal parties, Lexington’s $10 million excess policy
would be triggered only when the coverage from all of the other policies was exhausted.
Thus, the Coastal parties asked the trial court to award them $6 million, representing the
combined coverage limits of USF&G’s primary and excess policies.

       USF&G moved for entry of judgment on two alternative theories. First, it asked
the trial court to rule that COIL and Lexington take nothing because their claims were
foreclosed by the Texas Supreme Court’s ruling in Mid-Continent Insurance Company v.




                                              4
Liberty Mutual Insurance Company, 236 S.W.3d 765 (Tex. 2007).2 In the alternative,
USF&G asked the trial court to allocate responsibility for the first $1 million of the
settlement to USF&G’s primary policy, and the next $500,000 to Reliance’s primary
policy. As for priority among the excess insurers, USF&G argued that COIL’s $1 million
excess policy must be exhausted before USF&G’s umbrella policy was triggered, but that
Lexington’s policy was triggered when the amount of the loss reached $2 million. Thus,
in allocating the responsibility for the $5.5 million of the settlement that was not covered
by the primary policies, USF&G asked the trial court to require COIL to pay the first
$500,000 of excess coverage, at which time the underlying loss would equal $2 million and
Lexington’s policy would be triggered. Relying on Hardware Dealers Mutual Fire
Insurance Co. v. Farmers Insurance Exchange, 444 S.W.2d 583 (1969), USF&G argued
that because the other-insurance clauses of the COIL and Lexington policies were mutually
repugnant, those two insurers must contribute pro rata in proportion to their remaining
coverage limits until COIL’s coverage was exhausted.                    Because the other-insurance
clauses of the USF&G and Lexington excess policies also were mutually repugnant to each
other, USF&G argued that the remainder of the settlement must be allocated between them
in proportion to their remaining coverage limits. The net effect of this proposed allocation
was that USF&G would be responsible for $2,249,796 of the $7 million settlement.

       The parties also disagreed as to whether the Coastal parties would be entitled to
recover attorney’s fees even if they prevailed on all of their claims. The Coastal parties
pleaded for an award of attorney’s fees based on two chapters of the Texas Civil Practice &
Remedies Code—Chapter 37, in which the legislature authorized an attorney’s-fee award
to any party in a declaratory-judgment action, and Chapter 38, under which one who
prevails in a breach-of-contract claim is entitled to recover attorney’s fees if certain
requirements are met. USF&G stipulated that the Coastal parties’ attorney’s fees were
reasonable and necessary, but argued that the Coastal parties did not satisfy the

       2
           In this argument, USF&G did not address the claims of Coastal itself.
                                                     5
requirements for recovering attorney’s fees in a breach-of-contract claim. According to
USF&G, this failure foreclosed the Coastal parties from recovering under either statute on
which they relied.

       The trial court ruled in favor of the Coastal parties on all issues, and awarded them
$6 million in damages—an amount equal to the combined coverage limits of the USF&G
primary and umbrella policies—as well as $1,039,054.92 in attorney’s fees and taxable
court costs, together with pre- and post-judgment interest.          The trial court awarded
additional attorney’s fees in the event that USF&G filed post-judgment motions, and
appellate attorney’s fees in the event that USF&G filed an unsuccessful appeal.
USF&G’s motion for new trial was overruled by operation of law, and USF&G superseded
the judgment and timely appealed.

                                   II. ISSUES PRESENTED

       USF&G presents three issues for our review. In its first issue, USF&G contends
that the trial court erred in failing to allocate responsibility for the settlement funds
between the excess insurers on a pro rata basis as required under the holding of Hardware
Dealers. In its second issue, USF&G argues in the alternative that any right to payment
that COIL and Lexington otherwise might have had was foreclosed by the Texas Supreme
Court’s holding in Mid-Continent. USF&G argues in its third issue that the attorney’s-fee
award must be reversed because the Coastal parties failed to meet the requirements to
recover fees in a breach-of-contract action.
                                       III. ANALYSIS
       USF&G’s first two issues concern the trial court’s disposition of the competing
motions for judgment on the priority of the coverage afforded under the various policies.
In matters tried to the bench, parties may move for judgment in much the same way that
they may move for directed verdict in a jury trial. One difference, however, is the
standard of review on appeal. Sanchez v. Marine Sports, Inc., No. 14-03-00962-CV, 2005
WL 3369506, at *1 (Tex. App.—Houston [14th Dist.] Dec. 13, 2005, no pet.) (mem. op.)
                                               6
(citing Grounds v. Tolar Indep. Sch. Dist., 856 S.W.2d 417, 422 (Tex. 1993) (Gonzalez, J.,
concurring)). In the appeal of a successful motion for judgment, the sufficiency of the
evidence may be challenged as in any other non-jury case. Sanchez, 2005 WL 3369506,
at *1. In this appeal, USF&G does not challenge any actual or implied findings of fact,
but instead contends that the trial court misapplied the law in failing to follow binding
precedent and in awarding attorney’s fees in disregard of statutory requirements. These
are questions of law, and as such, we review them de novo. See id.
         Because it is potentially dispositive, we begin our review with USF&G’s second
issue.

A.       Applicability of Mid-Continent Insurance Co. v. Liberty Mutual Insurance Co.

         In its broadest argument, USF&G maintains that the Texas Supreme Court’s
holding in Mid-Continent Insurance Co. v. Liberty Mutual Insurance Co. bars COIL and
Lexington’s claims for subrogation.         The Coastal parties contend that the case is
distinguishable. We therefore begin with the facts and reasoning of that case.

         In Mid-Continent, a general contractor was the named insured on two insurance
policies issued by Liberty Mutual Insurance Company. Mid-Continent, 236 S.W.3d at
769. One provided $1 million of primary liability coverage, and the other provided $10
million of excess coverage. Id. The contractor also was an additional insured on a
subcontractor’s $1 million primary policy issued by Mid-Continent Insurance Company.
Id. Both of the primary insurance policies contained the following other-insurance clause:

         4.     Other Insurance.

         If other valid and collectible insurance is available to the insured for a loss
         we cover . . . , our obligations are limited as follows:

         a.     Primary Insurance

         If this insurance is primary our obligations are not affected unless any of the
         other insurance is also primary. Then, we will share with all that other
         insurance by the method described in c. below.

                                               7
                                                   ...

        c.      Method of Sharing

        If all of the other insurance permits contribution by equal shares, . . . each
        insurer contributes equal amounts until it has paid its applicable limit of
        insurance or none of the loss remains, whichever comes first.

        If any of the other insurance does not permit contribution by equal shares, we
        will contribute by limits. Under this method, each insurer’s share is based
        on the ratio of its applicable limit of insurance to the total applicable limits of
        insurance of all insurers.

Id. Both insurers acknowledged their obligation to defend and indemnify the insured, and
they agreed that a jury verdict against the insured would be in the range of $2 to $3 million.
Id. at 669–70. Liberty Mutual believed that a jury would find the insured to be sixty
percent liable, but Mid-Continent anticipated a fault finding of only ten percent. Id. at
770. Liberty Mutual agreed to settle the case for $1.5 million 3 and demanded that
Mid-Continent pay half, but Mid-Continent refused to pay more than $150,000. 4 Id.
Liberty Mutual paid for the remainder of the settlement using the $1 million limits from the
primary policy and $350,000 of the coverage afforded under its excess policy.                          Id.
Liberty Mutual then sued Mid-Continent to recover the amount by which Liberty Mutual’s
payment exceeded its share of the settlement. Id.

        In its opinion, the Supreme Court of Texas addressed subrogation and contribution
in the context of claims between liability insurers.               The court explained that when
asserting a subrogation claim, “the insurer stands in the shoes of the insured, obtaining only
those rights held by the insured against a third party, subject to any defenses held by the
third party against the insured.” Id. at 774. Although this is true of both contractual and
equitable subrogation, the two are slightly different.

        3
         This is the amount that would be due if the insured were to be found 60% liable for a $2.5 million
judgment.
        4
          This figure would be equal to Mid-Continent’s half of the judgment if the insured were found to
be only 10% liable for the same $2.5 million judgment.
                                                    8
       Contractual subrogation is created by policy language in which the insurer, in
exchange for payment of the loss, receives the insured’s rights against the third party who
was primarily liable for the payment. Id. Because the insurer pursuing a subrogation
claim is exercising its insured’s rights, the third party may assert any defenses to the claim
just as if the insured brought the claim directly.        Id.   But, an insured’s right to
indemnification under a liability policy extends no further than the amount of the loss. Id.
at 775. Because the insured’s right of indemnity under a liability policy is limited to the
actual amount of the loss, an insured that has been fully indemnified by one of its insurers
has no right to an additional recovery from another of its insurers. See id. at 775. And
because it had been fully indemnified for its loss, the court held that the insured in
Mid-Continent had no claim against the non-paying insurer, and thus, there was no claim to
which Liberty Mutual could be contractually subrogated. Id. at 775.

       Unlike contractual subrogation, equitable subrogation is not dependent on the terms
of the policy, but instead “arises in every instance in which one person, not acting
voluntarily, has paid a debt for which another was primarily liable and which in equity
should have been paid by the latter.” Id. at 774; accord, Frymire Eng’g Co., Inc. ex rel.
Liberty Mut. Ins. Co. v. Jomar Int’l, Ltd., 259 S.W.3d 140, 144 (Tex. 2008). The court
explained in Mid-Continent that as a result of the pro rata clauses, each primary insurer
agreed to pay only its proportionate share of a loss. Mid-Continent, 236 S.W.3d at 772.
Under these circumstances, a “co-insurer paying more than its contractually agreed upon
proportionate share does so voluntarily; that is, without a legal obligation to do so.” Id.
Liberty Mutual had no obligation under the policy’s terms to pay more than its pro rata
share of the loss; thus, it could not recover in equitable subrogation because it was unable
to show that it had not acted voluntarily. See id. at 774–75.

       USF&G argues that the holding of Mid-Continent applies to bar COIL and
Lexington’s subrogation claims, but the facts of the two cases differ significantly.
Although the court’s holding in Mid-Continent was based in part on its conclusion that
                                              9
Liberty Mutual voluntarily paid more than its share of the settlement, the jury in this case
found that none of the Coastal parties voluntarily paid to settle the underlying claim.
USF&G did not challenge this finding in the trial court or on appeal.

       USF&G’s position also is completely unlike that of Mid-Continent Insurance Co.
Mid-Continent discharged its obligations to its fully indemnified insured by joining in its
defense and contributing to the settlement, but USF&G has not discharged its obligations
to its insured, despite the undisputed fact that Coastal has not been fully indemnified. To
the contrary, even though USF&G admits that the first $1 million of the settlement was
covered under USF&G’s primary policy, USF&G paid nothing, but instead left Coastal to
contribute most of its self-insured retention toward the cost of settlement. A decade later,
USF&G still has not indemnified this covered loss.

       The other-insurance clauses of the policies at issue in this case also differ from those
in Mid-Continent.     The primary policies in Mid-Continent contained identical—and
compatible—pro rata other-insurance clauses that limited each insurer’s indemnity
obligation. Here, nothing limited USF&G’s indemnity obligation as Coastal’s primary
insurer. The primary policies plainly provided that the USF&G policy was triggered first,
and the Reliance policy was excess to primary policies in which Coastal was an additional
insured.   The other-insurance clauses of the USF&G, COIL, and Lexington excess
policies also differ from those at issue in Mid-Continent. We are not presented with
compatible pro rata other-insurance clauses, but with conflicting clauses, each of which
purports to make the coverage afforded by the policy excess to any other coverage. As
explained below, the other-insurance clauses of the excess policies in this case, unlike the
clauses at issue in Mid-Continent, are mutually repugnant. See infra at Section III.B.

       In sum, this is not a case in which similar facts dictate similar results. Because the
facts of Mid-Continent are significantly unlike those presented here, we conclude that it is
inapplicable, and we overrule USF&G’s second issue.


                                              10
B.     Applicability of Hardware Dealers Mutual Fire Insurance Co. v. Farmers
       Insurance Exchange

       In an alternative argument, USF&G contends that the other-insurance clauses of the
excess insurance policies are mutually repugnant, and thus, under the precedent established
in Hardware Dealers Mutual Fire Insurance Co. v. Farmers Insurance Exchange, these
insurers must contribute to the settlement on a pro rata basis. We agree.

       The facts of Hardware Dealers resemble those presented here. In Hardware
Dealers, Anita Hyde was involved in an auto accident while she was test-driving a vehicle
owned by a dealership, and the driver of the other vehicle sued her. Id. at 584. Hyde was
potentially covered by two primary insurance policies. Id. The dealership’s policy was
issued by Hardware Dealers and contained an “escape clause.” Id. The policy covered
any permissive driver of one of the dealership’s vehicles, “but only if no other valid and
collectible automobile liability insurance, either primary or excess . . . is available to such
person.” Id. at 586. Hyde also was covered by a policy issued to her father by Farmers
Insurance Exchange.       Id. at 584.    That policy contained an other-insurance clause
providing that “the insurance with respect to a . . . non-owned automobile shall be excess
insurance over any other valid and collectible insurance.” Id. at 585–86. As the court
explained the conflict, “Farmers says it owes excess liability only because of Hardware’s
other insurance; Hardware says its escape clause is the more specific of the two clauses and
it escapes all liability.” Id. at 584.

       The court held that when, from the insured’s point of view, coverage is afforded
“from either one of two policies but for the other, and each contains a provision which is
reasonably subject to a construction that it conflicts with a provision in the other concurrent
insurance, there is a conflict in the provisions.” Id. at 590. The court considered and
rejected Hardware’s argument that the more specific other-insurance clause prevails. The
court explained that this method of determining priority “encourages the continuing battle
of draftsmanship” but is “no better” than other methods that “had been described as a

                                              11
mechanical application of some arbitrary test.” Id. at 588. Instead, the court concluded
that when faced with conflicting other-insurance clauses, “‘the only reasonable result to be
reached is a proration between the two insurance companies in proportion to the amount of
insurance provided by their respective policies.’” Id. at 590 (quoting United States Auto.
Ass’n v. Hartford Accident & Indem. Co., 414 S.W.2d 836 (Tenn. Sup. Ct. 1967)).

       Here, we are faced with conflicting other-insurance clauses in the excess policies.
In each of these clauses, the insurer attempts to make the policy excess to any other policy
in which it is not identified as underlying insurance. USF&G’s policy provides, “This
insurance is excess over any other valid and collectible insurance whether primary, excess,
contingent, or on any other basis, except other insurance written specifically to be excess
over this insurance.” The COIL and Lexington policies do not identify the USF&G
umbrella policy as underlying insurance; thus, one who read the USF&G policy first would
conclude that it is excess to the COIL and Lexington policies. Those policies, however,
likewise have other-insurance clauses, providing, “If other valid and collectible insurance
is available to the Insured covering a Loss also covered by this Policy, other than insurance
that is specifically in excess of this Policy, the insurance afforded by this Policy shall be in
excess of and shall not contribute with such other insurance.” The USF&G policy does
not identify the COIL and Lexington policies as underlying insurance; thus, one who read
these policies first would conclude that they are excess to the USF&G umbrella policy.
This is the just the kind of “circular riddle” described—and solved—in Hardware Dealers.
See id. at 589 (explaining that the other-insurance clauses of two policies conflict if the
reader would reach one conclusion by reading a particular policy first, but would reach the
opposite conclusion by reading the other policy first); id. at 590 (holding that if one would
reach opposite conclusions depending on which policy was read first, then “the only
reasonable result” is proration).

       The Coastal parties contend that the other-insurance clauses of the excess policies
are not mutually repugnant if one considers the overall pattern of the insurance from

                                              12
Coastal’s point of view. See Hardware Dealers, 444 S.W.2d at 589; accord, Liberty Mut.
Ins. Co. v. United States Fire Ins. Co., 590 S.W.2d 783, 785 (Tex. App.—Houston [14th
Dist.] 1979, writ ref’d n.r.e.). They argue that because Weaver and Coastal had a service
agreement in which Weaver agreed to provide primary coverage to Coastal, Coastal
intended and expected that its own insurance would be excess to the coverage obtained by
Weaver. Our analysis, however, does not depend on Coastal’s intent regarding the effect
of its agreement with Weaver. Insurance policies are contracts, and we interpret the
parties’ intent “as reflected in the terms of the policy itself.” Tanner v. Nationwide Mut.
Fire Ins. Co., 289 S.W.3d 828, 831 (Tex. 2009). None of the insurers were parties to the
agreement between Weaver and Coastal, and while the service agreement may provide
context, we cannot read it as varying or contradicting the policies’ terms. Cf. Houston
Exploration Co.v. Wellington Underwriting Agencies, Ltd., 54 Tex. Sup. Ct. J. 1683, 2011
WL 3796361, at *4 (Tex. Aug. 26, 2011) (evidence concerning the parties’ negotiations
can provide context, but the parol evidence rule prohibits consideration of extrinsic
evidence to contradict the policy’s text).

       The Coastal parties also point out that the holding of Hardware Dealers does not
apply to policies that are not of the same character and level. See Carrabba v. Employers
Cas. Co., 742 S.W.2d 709, 715 (Tex. App.—Houston [14th Dist.] 1987, no writ). They
assert that “USF&G’s umbrella policy is a quasi-primary policy,” because in some
circumstances, USF&G’s policy provides primary coverage, whereas Lexington’s policy
is always excess. This is incorrect; both the USF&G and Lexington excess policies
contain clauses indicating that each potentially could provide “drop down” coverage in
some circumstances. More importantly, however, we are concerned with the character of
the policy as shown by the pattern of coverage within each policy, not in exceptions that
might be triggered in circumstances that are not presented. See id. at 714 (explaining that
we “examin[e] the overall pattern of insurance and constru[e] the policy as a whole,” and
noting that a policy “generally afforded primary coverage” where it provided excess
coverage only because the insured was operating a hired vehicle).
                                          13
       The Coastal parties also assert that the COIL and Lexington policies are excess to
the USF&G umbrella policy because they are more specific. They point out that the COIL
and Lexington other-insurance clauses contain language that those policies “shall not
contribute with” any other insurance, and cite authority in which the authoring court held
that, as between two polices with competing other-insurance clauses, a policy containing
the more specific language is excess to a policy in which the language was less specific.
See Atl. Mut. Ins. Co. v. Truck Ins. Co., 797 F.2d 1288 (5th Cir. 1986). That case,
however, was decided under New York law. Id. at 1292. We are bound by Texas
precedent, and the Supreme Court of Texas considered and rejected the approach that the
Coastal parties advocate. See Hardware Dealers, 444 S.W.2d at 588–89.

       Finally, the Coastal parties state that the other-insurance clause in the Lexington
excess policy does not conflict with that of the USF&G policy because the conditions
triggering coverage under the USF&G umbrella policy occur before those triggering
coverage under the Lexington policy. The excess coverage provided by the COIL and
USF&G excess policies are triggered upon the exhaustion of the primary coverage ($1
million of which is provided by the USF&G primary policy, and $500,00 of which is
provided by the Reliance policy). Lexington’s excess policy, on the other hand, is
triggered when the loss exceeds $2 million. Because the USF&G and COIL excess
policies are triggered first, the Coastal parties assert that the limits of those policies must be
exhausted before the Lexington policy is triggered. But in each of the cases they cite in
support of this proposition, the terms of the excess policies at issue provided that coverage
would be triggered only on the exhaustion of specifically identified underlying insurance
policies. See, e.g., Utica Nat’l Ins. Co. v. Fid. & Cas. Co, 812 S.W.2d 656, 559–560 (Tex.
App.—Dallas 1991, writ denied) (concluding that where excess coverage is triggered only
on the exhaustion of specified underlying insurance policies and the settlement is less than
the limits of the underlying policy, then the excess policy is not triggered); Stewart Enters.
v. RSUI Indem. Co., 614 F.3d 117, 119–121 (5th Cir. 2010) (per curiam) (applying
Louisiana law to the interpretation of ambiguous following-form provisions of policies that
                                            14
were excess to specifically identified underlying insurance); Interco, Inc. v. Nat’l Sur.
Corp., 900 F.2d 1264, 1265–68 (8th Cir. 1990) (applying Missouri law and concluding that
second- and third-tier excess policies were not triggered when the specifically identified
underlying first-tier policy was not exhausted, and did not “drop down” due to the first-tier
insurer’s insolvency). Here, however, Lexington did not provide coverage that was
excess to a specifically identified policy and that was triggered only on the exhaustion of
that policy’s limits; instead, it provided coverage excess of an “underlying amount” of $2
million. That amount could be reached without exhausting the limits of the COIL and
USF&G policies.

       In sum, we agree with USF&G that the other-insurance clauses of the COIL,
Lexington, and USF&G excess policies are mutually repugnant. Because coverage under
these circumstances is prorated among the insurers, the Coastal parties are entitled to
recover only a portion of the funds expended in settling the Lopez suit.

C.     Effect of Hardware Dealers

       USF&G contends that if Hardware Dealers applies, then the order in which the
policies are triggered and the extent of contribution from each is as stated below.5 The
Coastal parties have not disputed that this allocation is correct if, as we have found, pro rata
contribution is required under Hardware Dealers, and coverage under Lexington’s policy
is triggered before the USF&G and COIL excess policies are exhausted. We therefore
determine the extent of USF&G’s liability based on the following allocation:

       The USF&G primary policy was triggered first, and under it, USF&G was required
to contribute $1 million toward the cost of settling the Lopez suit. The Reliance primary
policy afforded coverage for the next $500,000 of the ultimate net loss. In contrast, excess
insurers do not contribute until the primary policies are exhausted. St. Paul Mercury Ins.

       5
          The allocation USF&G proposes on appeal differs from the allocation it proposed in the trial
court in that it has abandoned its earlier contention that the COIL policy must be exhausted before the
USF&G umbrella policy is triggered.
                                                  15
Co. v. Lexington Ins. Co., 78 F.3d 202, 209 & n.23 (5th Cir. 1996); Emscor Mfg., Inc. v.
Alliance Ins. Group, 879 S.W.2d 894, 903 (Tex. App.—Houston [14th Dist.] 1994, writ
denied). Thus, the two primary policies together provided coverage for the first $1.5
million of the loss, leaving $5.5 million of the $7 million Lopez settlement to be allocated
among the excess insurers.

       With the exhaustion of the primary policies, the COIL and USF&G excess policies
were triggered, but the Lexington policy was not. Lexington provided coverage only for
losses in excess of $2 million, and by the time that the primary coverage was exhausted and
COIL and USF&G’s excess policies were triggered, only $1.5 million was required to have
been paid. Thus, the next $500,000 of liability is allocated between COIL and USF&G.
COIL provided $1 million of excess coverage, and USF&G provided $5 million of excess
coverage. Thus, of the combined excess coverage of $6 million that had been triggered at
this time, USF&G provided 5/6 of the coverage and COIL provided 1/6. Consequently,
5/6 of the next $500,000—an amount equal to $416,667—is allocable to USF&G, and the
remaining 1/6, totaling $83,333, is allocable to COIL.

       Payment of these sums would cover $2 million of the $7 million settlement, and
would trigger coverage under the Lexington policy, which provided coverage for losses in
excess of an underlying amount of $2 million. Thus, the remaining $5 million of the
Lopez settlement is apportioned between the COIL, USF&G, and Lexington policies on a
pro rata basis. USF&G asks that we allocate the loss among the three excess insurers in
proportion to the remaining coverage available under each policy, and although the Coastal
parties contend that proration is not required because, in their view, all of their policies are
excess to the USF&G policies, they do not dispute that this formula is otherwise
appropriate. We therefore employ it.

       When the Lexington policy was triggered, $4,583,333 remained of the coverage
afforded by USF&G’s umbrella policy; $916,667 remained of COIL’s excess coverage;
and Lexington’s $10 million of coverage was untouched. Together, the three policies
                                              16
afforded $15.5 million of coverage. To allocate the remaining $5 million of the Lopez
settlement, we divide each insurer’s remaining coverage by the total remaining coverage,
then multiply the resulting figure by $5 million. Using this formula, COIL’s remaining
share of the loss is ($916,667/$15,500,000) x $5,000,000, which is equal to $295,699.
USF&G’s share is ($4,583,333/$15,500,000) x $5,000,000, or $1,478,495.                     And
Lexington’s share of the loss is ($10,000,000/$15,500,000) x $5,000,000, which equals
$3,225,806. Adding together all of the amounts owed by USF&G—$1 million of primary
coverage; $416,667 of the first $500,000 of excess coverage; and $1,478,495 of the
remaining excess coverage—we arrive at a total of $2,895,162.

       Thus, we sustain USF&G’s first issue and hold that USF&G is liable to the Coastal
parties for the amount of $2,895,162, exclusive of interest, attorney’s fees, and costs.

D.     Attorney’s Fees

       In its final issue, USF&G challenges the trial court’s award to the Coastal parties of
their reasonable and necessary attorney’s fees.      We review a trial court’s award of
attorney’s fees for abuse of discretion. Bocquet v. Herring, 972 S.W.2d 19, 20 (Tex.
1998). A trial court abuses its discretion when it fails to analyze or apply the law
correctly. In re Sw. Bell Tel. Co., 226 S.W.3d 400, 403 (Tex. 2007) (citing In re Kuntz,
124 S.W.3d 179, 181 (Tex. 2003)).

       The Coastal parties sought attorney’s fees under two different statutory provisions.
Under Chapter 38 of the Texas Civil Practice and Remedies Code, the trial court must
award attorney’s fees to a litigant who prevails in breach-of-contract claim if (1) the
claimant was represented by an attorney, (2) the claimant presented the claim to the
opposing party or the party’s agent, and (3) the opposing party did not “tender payment for
the just amount owed” within thirty days after the claim was presented. See TEX. CIV.
PRAC. & REM. CODE ANN. § 38.001(8) (West 2008) (permitting recovery of reasonable
attorney’s fees “in addition to the amount of a valid claim and costs” in a
breach-of-contract action); id. § 38.002 (setting forth requirements of representation,
                                             17
presentment, and non-payment); Smith v. Patrick W.Y. Tam Trust, 296 S.W.3d 545, 547
(Tex. 2009) (“If attorney’s fees are proper under section 38.001(8), the trial court has no
discretion to deny them.”). Under Chapter 37 of the same code, attorney’s fees also are
available in proceedings pursuant to the Uniform Declaratory Judgments Act.              Id.
§ 37.009. In a declaratory-judgment action, “the court may award costs and reasonable
and necessary attorney’s fees as are equitable and just.” Id.

       USF&G argues that because the Coastal parties failed to obtain a jury finding that
USF&G breached its insurance contract, they are not entitled to recover attorney’s fees
under Chapter 38 in connection with their breach-of-contract claims. In addition, USF&G
contends that the Coastal parties did not present their claims and could not have done so
before the jury returned a verdict in this case. This is so, USF&G argues, because the
Lopez claimants sued both Coastal and Coastal’s parent company, and although COIL and
Lexington insured both of these entities, USF&G did not insure Coastal’s parent company.
USF&G asserts that the Coastal parties could not validly present their claim until the jury
determined what percentage of the settlement funds were expended for release of the
claims against USF&G’s insured.

       USF&G then asserts that an award of attorney’s fees under the Uniform Declaratory
Judgments Act “is improper for the same reasons”—even though attorney’s fees may be
awarded under this Act to a party who presented no claims, and even where the declaratory
judgment sought concerns a question of law on which no jury finding is necessary.
According to USF&G, if the Coastal parties are not entitled to recover attorney’s fees
under Chapter 38 for their breach-of-contract claim, they cannot recover fees under
Chapter 37 under the Uniform Declaratory Judgments Act because “a party cannot use the
Act as a vehicle to obtain otherwise impermissible attorney’s fees.” It is true that “when a
claim for declaratory relief is merely tacked onto a standard suit based on a matured breach
of contract, allowing fees under Chapter 37 would frustrate the limits Chapter 38 imposes
on such fee recoveries.” MBM Fin. Corp. v. Woodlands Operating Co., L.P, 292 S.W.3d

                                            18
660, 670 (Tex. 2009). A party cannot convert a claim for which attorney’s fees are not
recoverable into a claim for which a fee award is available simply by restyling the claim as
a request for declaratory judgment. Id. at 690. From this premise, USF&G reasons that
if the Coastal parties cannot recover attorney’s fees for their breach-of-contract claim, they
cannot recover the fees under the Uniform Declaratory Judgments Act.

       The problem with this argument is that it was USF&G that filed this suit for
declaratory judgment, and attorney’s fees can be recovered by a party in a
declaratory-judgment action even if that party asserts no other claim. See id. at 669
(“[T]he Declaratory Judgments Act allows fee awards to either party in all cases.”);
Chappell Hill Bank v. Smith, 257 S.W.3d 320, 331 (Tex. App.—Houston [14th Dist.] 2008,
no pet.) (stating that the statute supports an award to either side in a declaratory-judgment
action). The record before us shows that when the Coastal parties pleaded for an award of
attorney’s fees under the Act, they had not asserted a breach-of-contract claim. Although
they later filed counterclaims for both breach of contract and declaratory judgment,
USF&G suggests no reason for its apparent assumption that by asserting claims of their
own for which attorney’s fees potentially were available, the Coastal parties lost the ability
to recover attorney’s fees in connection with USF&G’s declaratory-judgment claim.

       We overrule USF&G’s third issue. Because the Coastal parties were eligible for an
attorney’s-fee award in connection with USF&G’s suit for declaratory judgment, we need
not consider whether they would have been entitled to the same award in connection with
their breach-of-contract claims. In this case, the parties stipulated that the amount of
attorneys’ fees requested was reasonable and necessary. We therefore affirm the trial
court’s award of $1,039,054.92 in attorney’s fees and costs notwithstanding any reduction
of the damages award.




                                             19
                                    IV. CONCLUSION

       Because the trial court erred in failing to prorate a portion of the covered loss among
COIL, Lexington, and USF&G, we reverse the judgment and remand the case with
instructions to the trial court to (a) reduce the damage award from $6 million to
$2,895,162, and (b) reduce the interest award in accordance with the reduced damages.




                                           /s/    Tracy Christopher
                                                  Justice



Panel consists of Justices Anderson, Brown, and Christopher (Anderson, J., not
participating on rehearing).




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