     Case: 17-51080      Document: 00514695205         Page: 1    Date Filed: 10/24/2018




           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT

                                                                     United States Court of Appeals

                                      No. 17-51080
                                                                              Fifth Circuit

                                                                            FILED
                                                                     October 24, 2018

NORTHFIELD INSURANCE COMPANY,                                          Lyle W. Cayce
                                                                            Clerk
              Plaintiff - Appellant

v.

CHARLES HERRERA, doing business as Austin Elevator Consultants,

              Defendant - Appellee



                   Appeal from the United States District Court
                        for the Western District of Texas
                             USDC No. 1:16-CV-553


Before KING, ELROD, and HAYNES, Circuit Judges.
PER CURIAM:*
       Charles Herrera purchased a commercial general liability insurance
policy from Northfield Insurance Company for his elevator service and
maintenance business. When an employee of a company that had hired
Herrera suffered an injury on one of the elevators serviced by him, the
employee sued Herrera. Northfield argues that the policy excludes coverage for
injuries to employees of those who hire Herrera for services, and therefore,




       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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                                No. 17-51080
Northfield is not obligated to defend or indemnify Herrera for this claim. We
REVERSE and REMAND for entry of judgment in favor of Northfield.
                                      I.
     Charles Herrera runs an elevator service and maintenance business
under the name “Austin Elevator Consultants.” In September 2013, Herrera
purchased a year-long commercial general liability policy with Northfield
Insurance Company (“Northfield”). Under the policy, Northfield agreed to
defend and indemnify Herrera against lawsuits seeking damages for bodily
injury or property damage. The policy is amended by an endorsement, titled
“EXCLUSION – INJURY TO EMPLOYEES, WORKERS OR CONTRACTED
PERSONS OF INSUREDS OR CONTRACTED ORGANIZATIONS.” The
endorsement includes the following “Contracted Persons” exclusion:
     Bodily Injury To Employees, Workers Or Contracted Persons Of
     Insureds Or Contracted Organizations

     This insurance does not apply to “bodily injury” to:

     (1) Any person who is an “employee”, “leased worker”, “temporary
     worker”, “volunteer worker” of you or any insured arising out of and in
     the course of:

           (a) Employment by you or any insured; or

           (b) Performing duties related to the conduct of your or any
           insured’s business;

     (2) Any person who contracted with you or with any insured for services
     arising out of and in the course of performing duties related to the
     conduct of your or any insured’s business;

     (3) Any person who is employed by, is leased to or contracted with any
     organization that:

           (a) Contracted with you or with any insured for services; or

           (b) Contracted with others on your behalf for services;


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                                 No. 17-51080
            arising out of and in the course of employment by that organization
            or performing duties related to the conduct of that organization’s
            business; or

      (4) The spouse, child, parent, brother or sister of any of those persons as
      a consequence of the “bodily injury” described in Paragraphs (1), (2) or
      (3) above.

      For the purposes of this exclusion, contracted with includes contracting
      with an oral or written contract.

      This exclusion applies:

      (1) Whether the insured may be liable as an employer or in any other
      capacity; and

      (2) Whether the insured may have any obligation to share damages with
      or repay someone else who must pay damages because of the injury.

      During the policy period, Austin Energy and Herrera entered into a
contract under which Herrera would service, inspect, and maintain elevators
in Austin Energy’s Sandhill Energy Center (“SEC”). In March 2014, Thomas
McCoy, an Austin Energy employee, was injured on a SEC elevator and sued
Herrera in a Texas state court for negligence. Although Northfield defended
Herrera in the state-court litigation under a reservation of rights, Northfield
also filed the instant action, seeking a declaratory judgment that it has no duty
to defend or indemnify Herrera. It is undisputed that McCoy was an Austin
Energy employee at the time of his injury; that his damages arose out of his
employment with Austin Energy; and that his injury was sustained during
that employment.
      The parties filed cross-motions for summary judgment, in which their
sole dispute revolved around the meaning of paragraph (3)(a). Herrera argued
that paragraph (3)(a) unambiguously applied only to so-called downstream
employees, i.e., to his subcontractors and their employees. Northfield argued
that the exclusion plainly ran downstream and upstream, thus also excluding
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                                 No. 17-51080
coverage for injuries to employees of businesses who hired Herrera, such as
Austin Energy.
      The district court agreed with Herrera, granted his motion, and denied
Northfield’s. It read paragraph (3)(a) in the context of the preceding
paragraphs and observed that the first two paragraphs “exclude coverage for
bodily injury to (1) Herrera’s employees and workers, and (2) Herrera’s
subcontractors performing duties related to his business.” “Following the
logical progression,” the district court reasoned, the next paragraph
unambiguously “excludes coverage for bodily injury to employees and workers
of Herrera’s subcontractors [(paragraph (3)(a))] and their subcontractors
[(paragraph (3)(b))].” The district court further observed that Northfield’s
parent company, Northland Insurance Company, had offered “this exact
interpretation in another lawsuit involving the same exclusion.” See Northland
Ins. Co. v. Doval Remodeling, Inc., No. 13-13192-GAO, 2015 WL 1243520, at
*2 (D. Mass. Mar. 18, 2015).
      The district court also noted that Northfield’s “expansive reading” of the
exclusion would render its service “illusory,” reasoning that “service-providing
businesses like Herrera[’s]” purchase general liability insurance to cover bodily
injuries to the employees of organizations that hire them. Northfield appeals
the judgment below.
                                       II.
      We review “a district court’s grant of summary judgment de novo,
applying the same standard on appeal as that applied below.” Rogers v. Bromac
Title Servs., L.L.C., 755 F.3d 347, 350 (5th Cir. 2014). Summary judgment is
proper “if the movant shows that there is no genuine dispute as to any material
fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.
56(a). “In a diversity case such as this one, we apply state substantive law”—


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                                  No. 17-51080
here, as both parties agree, Texas law. See Wiltz v. Bayer CropScience, L.P.,
645 F.3d 690, 695 (5th Cir. 2011).
      To determine Texas law, we first consider the decisions of the Texas
Supreme Court. ExxonMobil Corp. v. Elec. Reliability Servs., Inc., 868 F.3d
408, 414 (5th Cir. 2017). In the absence of definitive decisions from the Texas
Supreme Court on the issues, we “must determine, in our best judgment, how
we believe that court would resolve the issue.” Boyett v. Redland Ins. Co., 741
F.3d 604, 607 (5th Cir. 2014). “In making such a determination, we ‘may look
to the decisions of intermediate appellate state courts for guidance.’”
ExxonMobil Corp., 868 F.3d at 414 (quoting Howe v. Scottsdale Ins. Co., 204
F.3d 624, 617 (5th Cir. 2000)).
                                      III.
      On appeal, Northfield contends that the language of the policy is clear:
the policy does not apply to bodily injury to any employee of “any organization
that contracted with [Herrera].” Thus, Northfield argues that it does not have
a duty to defend Herrera in the state-court litigation.
      Texas’s “eight-corners rule” instructs that an insurer’s duty to defend its
insured must be determined “solely from terms of the policy and the pleadings
of the third-party claimant. Resort to evidence outside the four corners of these
two documents is generally prohibited.” GuideOne Elite Ins. Co. v. Fielder Rd.
Baptist Church, 197 S.W.3d 305, 307 (Tex. 2006). The only question before the
court is whether Herrera’s commercial general liability policy excludes
coverage for upstream contractors’ employees. Because the Texas Supreme
Court has not addressed this question, we must make an “Erie guess.” Boyett,
741 F.3d at 607.
      “Under Texas law, insurance polic[i]es are construed according to the
same rules of construction used to interpret contracts.” In re TransTexas Gas
Corp., 597 F.3d 298, 309 (5th Cir. 2010) (citing Don’s Bldg. Supply, Inc. v.
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                                  No. 17-51080
OneBeacon Ins. Co., 267 S.W.3d 20, 23 (Tex. 2008)). “The goal of contract
interpretation is to ascertain the parties’ true intent as expressed by the plain
language they used.” Great Am. Ins. Co. v. Primo, 512 S.W.3d 890, 893 (Tex.
2017). Terms are assigned “their ordinary and generally accepted meaning
unless the contract directs otherwise.” Id.
      To resolve a dispute over an insurance policy’s meaning, we “first look to
the plain language of the [policy] to determine whether it is ambiguous.” Horn
v. State Farm Lloyds, 703 F.3d 735, 738 (5th Cir. 2012). “An insurance policy
is only ambiguous if its plain language is amenable to more than one
reasonable interpretation.” Nautilus Ins. Co. v. Country Oaks Apartments Ltd.,
566 F.3d 452, 455 (5th Cir. 2009). “An ambiguity does not exist, however,
‘simply because the parties interpret a policy differently. If a contract as
written can be given a clear and definite legal meaning, then it is not
ambiguous as a matter of law.’” Am. Home Assur. Co. v. Cat Tech L.L.C., 660
F.3d 216, 220 (5th Cir. 2011) (quoting Gilbert Tex. Constr., L.P. v. Underwriters
at Lloyd’s London, 327 S.W.3d 118, 133 (Tex. 2010)). We may only consider the
parties’ interpretation and external evidence once the contract is first
determined to be ambiguous. Nat’l Union Fire Ins. Co. of Pittsburgh, PA v. CBI
Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995).
      Paragraph (3)(a) of Herrera’s policy excludes “[a]ny person who is
employed by . . . any organization that: (a) [c]ontracted with [Herrera] for
services . . . arising out of and in the course of employment by that organization
or performing duties related to the conduct of that organization’s business.”
The parties mainly dispute the meaning of the phrase “contracted with
[Herrera] for services.” The policy does not indicate that the parties intended
technical or industry-specific meanings for this phrase. Thus, we give the
phrase its “plain, ordinary, and generally accepted meaning.” Heritage Res.,
Inc. v. NationsBank, 939 S.W.2d 118, 121 (Tex. 1996). We may look to “[l]egal
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                                       No. 17-51080
or other well-accepted dictionaries” as well as “leading treatises on grammar
and word usage.” Horn, 703 F.3d at 738.
       The phrase “contracted with” can be used to refer to upstream and
downstream relationships. Black’s Law Dictionary focuses on the use of
“contract” as a noun, defining “contract for services” generally as “[a] contract
for a job undertaken by an independent contractor, as opposed to an employee.”
Contract for Services, Black’s Law Dictionary (10th ed. 2009). Oxford
Dictionaries provides a helpful definition of the verb “contract,” defining it as
to “enter into a formal and legally binding agreement.” Contract, Oxford
Dictionaries English, https://en.oxforddictionaries.com/definition/contract. It
then provides various examples, some of which use “contract with” to indicate
that the subject of the sentence has been hired by another, and others using
“contract with” to indicate that the subject is hiring a subcontractor. 1 Id.
Likewise, we have used the phrase “contracted with” to indicate that the
subject of the sentence had both upstream and downstream relationships.
Compare Bagby Elevator Co. v. Schindler Elevator Corp., 609 F.3d 768, 770
(5th Cir. 2010) (using “Younan contracted with Bagby to provide full elevator
maintenance services” to indicate that Younan hired Bagby), with Sulzer
Carbomedics, Inc. v. Or. Cardio-Devices, Inc., 257 F.3d 449, 459 (5th Cir. 2001)
(describing case where “plaintiff contracted with one of the defendants to
establish a rock quarry on that defendant’s land,” meaning that the object of
the sentence (the defendant) hired the plaintiff). Thus, the plain language of
the phrase “any organization that: (a) Contracted with [Herrera] for services”



       1 For instance, the entry provides examples such as, “Local governments can also
contract with private businesses for other services, like trash collection,” suggesting that the
government has hired a private business by “contract[ing] with” the business, as well as,
“Vendors contract with one of nine independent laboratory-testing facilities,” which could be
read as the vendor entering into a contract by which it agrees to provide services to the
laboratory-testing facilities.
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                                 No. 17-51080
could reasonably be read to include both upstream and downstream
contractors, and Northfield’s proffered interpretation is reasonable.
      Moreover, unlike paragraph (2), which limits its application to persons
“performing duties related to [Herrera’s] business,” paragraph (3)(a) uses
broader language, applying to employees of organizations when they are
“performing duties related to the conduct of that organization’s business”
(emphasis added). It would not be necessary to modify the language in
paragraph (3)(a) if the exclusion only ran downstream—any work performed
by Herrera’s subcontractor is necessarily related to his work. But work
performed by employees of those who have hired Herrera may not be related
to Herrera’s own work. Otherwise put, if the parties had intended for
paragraphs (2) and (3)(a) to apply to subcontractors, we assume that they
would have used the same language. Thus, we understand the modification of
paragraph (3)(a)’s language to demonstrate the parties’ intent that it apply
more broadly, further supporting our conclusion that paragraph (3)(a) can
reasonably be read to apply to upstream contractors.
      The only reasonable interpretation of the policy is that it applies
upstream and downstream. We find no reason to limit its application to
downstream contractors. The plain language is unambiguous. Cf. Nautilus Ins.
Co., 566 F.3d at 455 (defining ambiguity as arising when there is more than
one reasonable interpretation of a policy). Because the plain language is
unambiguous, it must be enforced as written, and judgment should be entered
in favor of Northfield on Herrera’s duty-to-defend claim.
      Texas law usually reserves determination of the duty to indemnify until
the conclusion of the underlying litigation, but it does recognize an exception:
when “the insurer has no duty to defend and the same reasons that negate the
duty to defend likewise negate any possibility the insurer will ever have a duty
to indemnify.” LCS Corr. Servs., Inc. v. Lexington Ins. Co., 800 F.3d 664, 669
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(5th Cir. 2015) (quoting Farmers Tex. Cty. Mut. Ins. Co. v. Griffin, 955 S.W.2d
81, 84 (Tex. 1997) (per curiam)). Thus, having decided that there is no duty to
defend, we can decide the duty to indemnify at this point “when it is clear that
[our] ruling on the duty to defend must also control the duty to indemnify.” Id.
at 672. Given the undisputed facts surrounding the underlying claim and the
unambiguous language of the exclusion, we conclude that this is such a case.
Accordingly, judgment should be rendered in favor of Northfield on Herrera’s
indemnity claim.
      Although Herrera offers an alternative, his suggested interpretation is
not a reasonable reading of the policy. Herrera urges us to affirm the district
court, which assumed that the exclusion followed a “logical progression.”
Reading the first paragraph as applying to Herrera’s employees and the second
as applying to his subcontractors, the district court reasoned that the “logical
progression” of the exclusion suggested that the third paragraph should apply
to Herrera’s subcontractors (paragraph (3)(a)) and their subcontractors
(paragraph (3)(b)).
      Herrera does not cite any caselaw from Texas, the Fifth Circuit, or
otherwise instructing that courts should assume that the drafters of an
insurance policy intended their provisions to follow a “logical progression”
when the text of the policy is otherwise unambiguous. And the Texas Supreme
Court has discouraged litigants from searching for ambiguities. See Nat’l
Union Fire Ins., 907 S.W.2d at 522 (finding error in decision to allow discovery
regarding insurance contract when no ambiguity was apparent on the face of
the policy, even though discovery may have led to information regarding latent
ambiguity). To infer intent into the sequencing of the exclusion would require
us to ignore its plain language. Therefore, we find Herrera’s interpretation is
not reasonable.


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                                       No. 17-51080
       Herrera cites several cases construing similar language to bar suits by
employees of subcontractors. But these courts did not consider whether that
language would apply to upstream contractors, and are therefore not helpful.
And although one court has interpreted similar language as prohibiting the
upstream application of this exclusion, Capitol Specialty Ins. Corp. v. Yuan
Zhang, No. C11-41Z, 2012 WL 1252638, at *3 (W.D. Wash. Apr. 13, 2012), 2 the
Zhang court’s analysis was brief, and there is no indication that the policy at
issue included language broadening its scope, like that included in Herrera’s
policy.
       Herrera also argues that Northfield has taken the opposite position—
i.e., that paragraph (3)(a) only applies downstream—in Doval. This
characterization is misleading, as the Doval court only considered the
application of paragraph (3)(b). See 2015 WL 1243520, at *2. Although
Northfield argued that (3)(a) and (3)(b) will run downstream to subcontractors
and sub-subcontractors, it did not take a position on whether the provisions
only run downstream. Id.
       Finally, Herrera protests that excluding this claim will render the
policy’s coverage “illusory” because the elevator in question is a service elevator
and, therefore, only used by Austin Energy employees. Texas disfavors
constructions of insurance contracts that render all coverage illusory. See
Davis-Ruiz Corp. v. Mid-Continent Cas. Co., 281 F. App’x 267, 274 (5th Cir.
2008) (per curiam) (unpublished) (citing ATOFINA Petrochemicals, Inc. v.
Cont’l Cas. Co., 185 S.W.3d 440, 444 (Tex. 2005)). But when an insurance policy
will provide coverage for other claims, Texas courts are unlikely to deem the


       2 The insurance policy at issue in Zhang excluded property damage “sustained by any
person” who is “1. Contracted with you or with any insured for services; or (2) . . . contracted
with any entity that is: A. Contracted with you or with any insured for services; or B.
Contracted with others on your behalf for services.” Zhang, 2012 WL 1252638, at *3 (omission
in original).
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                                   No. 17-51080
policy illusory. E.g., Grain Dealers Mut. Ins. Co. v. McKee, 943 S.W.2d 455, 459
(Tex. 1997). Herrera will still be protected against claims brought by third
parties, such as SEC’s vendors and visitors to the site. He will also be protected
from claims relating to his other job sites. Therefore, the policy’s coverage is
not illusory.
                                       IV.
      For the foregoing reasons, we REVERSE and REMAND for entry of
judgment in favor of Northfield.




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