     Case: 14-50649      Document: 00512950594         Page: 1    Date Filed: 02/26/2015




           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT


                                    No. 14-50649
                           consolidated with No. 14-50673
                                                                         United States Court of Appeals
                                                                                  Fifth Circuit

                                                                                 FILED
                                                                         February 26, 2015
MID-CONTINENT CASUALTY COMPANY,
                                                                           Lyle W. Cayce
                                                                                Clerk
              Plaintiff - Appellant

v.

KIPP FLORES ARCHITECTS, L.L.C.,

              Defendant - Appellee


                  Appeals from the United States District Court
                        for the Western District of Texas
                              USDC No. 1:13-CV-60


Before KING, DAVIS, and OWEN, Circuit Judges.
PER CURIAM:*
       Following a jury trial in a prior lawsuit, Defendant-Appellee Kipp Flores
Architects, LLC (“KFA”), an architecture firm, obtained a judgment against a
builder,    Hallmark      Design     Homes,     L.P.    (“Hallmark”),      for      copyright
infringement for building hundreds of buildings from its designs without
licensing them. Plaintiff-Appellant Mid-Continent Casualty Company (“Mid-
Continent”), Hallmark’s insurer, filed this declaratory judgment action against
KFA, seeking a declaration that it has no duty to indemnify under the


       * 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 R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH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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applicable policies. Mid-Continent claimed the policies did not cover copyright
infringement directly, only advertising injury arising out of copyright
infringement, and that the prior judgment did not establish advertising injury.
The parties filed cross motions for summary judgment. The judge granted
KFA’s motion and denied Mid-Continent’s, rendering judgment against the
Mid-Continent in the amount of the prior judgment plus attorney’s fees. Mid-
Continent appealed, arguing that it has no duty to indemnify but, in the event
it does, the attorney’s fees award is not supported under Texas law. 1 For the
reasons set out below, we affirm.
I.     BACKGROUND 2
       KFA is an architecture firm that designs homes and then licenses those
designs to other companies to build. Hallmark, a homebuilder in the Houston,
Texas area, entered into several architectural services and license agreements
with KFA. Under these agreements, KFA agreed to supply Hallmark with 11
different house designs, each of which Hallmark was authorized to build once.
If Hallmark wished to build any copy after that first licensed copy, it was
required to pay KFA in advance for a license. Under the agreements,
Hallmark’s failure to pay for a license for reuse of a plan rendered null and
void KFA’s grant of the right to reuse it.
       After building the first licensed copy of each of the 11 house plans,
Hallmark built several hundred more copies without paying KFA. When KFA
discovered Hallmark’s actions, it sued Hallmark for copyright infringement,
seeking actual damages or, in the alternative, statutory damages for the


       1  Because the district court had diversity jurisdiction under 28 U.S.C. § 1332, this
court has jurisdiction under 28 U.S.C. § 1291.
        2 Unless otherwise noted, the undisputed facts in this section come from the district

court’s opinion, see Mid-Continent Cas. Co. v. Kipp Flores Architects, LLC, No. 1:13-CV-60-
JRN, 2014 WL 3417544 (W.D. Tex. Apr. 3, 2014), as well as the pleadings in the prior suit,
the agreements between KFA and Hallmark, and the policies Mid-Continent issued to
Hallmark.
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infringement under 17 U.S.C. § 504. In its Second Amended Complaint, KFA
specifically asserted:
              Defendants have created, published and used non-
              pictorial depictions of structures based on KFA’s
              Copyrighted Works in promotional and advertising
              materials. Defendants have published and used these
              infringing materials in the course of advertising their
              infringing structures. Furthermore, defendants have
              used the structures themselves to advertise their
              infringing structures. These infringing advertising
              activities have resulted in the sales of infringing
              structures described above. Furthermore, these
              infringing advertising activities, and the resulting
              infringing sales, are and have been a substantial
              factor in the value of any infringing structures that
              defendants have not yet sold, and the prices that
              buyers would be willing to pay for such structures.
       Hallmark filed for bankruptcy before trial, but the trial went forward
because Hallmark was potentially covered by the Mid-Continent policies at
issue in this action. The jury returned a verdict in favor of KFA on September
12, 2012, finding that Hallmark had infringed all 11 of KFA’s designs and
finding the amount of profit attributable to the infringement. The district court
entered a final judgment on October 4, 2012, establishing that Hallmark had
infringed KFA’s copyrights and allowing KFA an unsecured claim in
Hallmark’s bankruptcy in the amount of $3,231,084 plus taxable costs of
$8,604.40. The Fifth Circuit affirmed. 3
       On January 23, 2012, Mid-Continent filed this action seeking a
declaratory judgment that it had no duty to indemnify under the policies it
issued to Hallmark. The policies, discussed in detail below, generally exclude
coverage for copyright infringement, but they exempt from that exclusion—i.e.,



       3 Kipp Flores Architects, L.L.C. v. Hallmark Design Homes, L.P., 544 F. App’x 553, 554
(5th Cir. 2013).
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cover—an “advertising injury” arising out of infringement in Hallmark’s
“advertisement,” as defined in the policies. The policies also provide that the
holder of a judgment against Hallmark may recover under the policies.
       Mid-Continent filed a motion for summary judgment, seeking a
judgment that the policies do not provide coverage for the judgment of
copyright infringement for a number of reasons. Most notably, Mid-Continent
argued that the prior judgment was not for a covered “advertising injury”
because the infringement did not take place in an “advertisement” as defined
in the policies. KFA filed a cross-motion for partial summary judgment
claiming the policies do cover the prior judgment. The district court granted
KFA’s motion and denied Mid-Continent’s, and it awarded attorney’s fees to
KFA under Texas law based on KFA’s contingency fee arrangement with its
attorneys.
       Mid-Continent appealed both the coverage and attorney’s fees issues on
a number of grounds. For the reasons set out below, we affirm.
II.    DISCUSSION
       A.       Applicable Law And Policy Language
       This court “review[s] a district court’s grant of summary judgment de
novo,” applying the usual standards under Fed. R. Civ. P. 56. 4 The parties
agree that Texas law governs this insurance dispute, so we must look to state
law for the rules of policy interpretation and the burden of proof.
                1.      Interpretation of Insurance Contracts

       Texas’s rules for interpreting insurance contracts are straightforward:
                Texas courts “construe insurance policies according to
                the same rules of construction that apply to contracts
                generally.” When interpreting insurance contracts,
                courts seek “to ascertain the true intentions of the
                parties as expressed in the instrument.” To this end,


       4   RSR Corp. v. Int’l Ins. Co., 612 F.3d 851, 857 (5th Cir. 2010).
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              Texas courts “examine and consider the entire writing
              in an effort to harmonize and give effect to all the
              provisions of the contract so that none will be rendered
              meaningless,” give policy terms “their ordinary and
              commonly understood meaning unless the policy itself
              shows the parties intended a different, technical
              meaning,” and “strive to honor the parties’ agreement
              and not remake their contract by reading additional
              provisions into it[.]”
              Moreover, courts must decide if a contract contains
              ambiguous provisions. If the contract “can be given a
              definite or certain meaning as a matter of law,” courts
              will not consider the contract to be ambiguous. A
              provision is not ambiguous “simply because the parties
              interpret a policy differently.” Rather, a court will find
              a term ambiguous if “the language of a policy or
              contract is subject to two or more reasonable
              interpretations.” If a contract is ambiguous, such
              ambiguity will be construed against the insurer. 5
              2.     Burden of Proof on Coverage and Exclusions

       Texas law recognizes that “the duty to defend and the duty to indemnify
‘are distinct and separate duties.’” 6 Because Mid-Continent already paid for
Hallmark’s defense in the first suit, this suit does not concern the duty to
defend but the duty to indemnify.
              While analysis of the duty to defend has been strictly
              circumscribed by the eight-corners doctrine, it is well
              settled that the “facts actually established in the
              underlying suit control the duty to indemnify.” As with
              any other contract, breach or compliance with the
              terms of an insurance policy is determined not by
              pleadings, but by proof. . . .




       5 United Nat. Ins. Co. v. Mundell Terminal Servs., Inc., 740 F.3d 1022, 1027 (5th Cir.
2014) (citations omitted).
       6 D.R. Horton-Texas, Ltd. v. Markel Int’l Ins. Co., 300 S.W.3d 740, 743 (Tex. 2009)

(hereinafter Horton) (quoting Utica Nat’l Ins. Co. v. Am. Indem. Co., 141 S.W.3d 198, 203
(Tex. 2004)).
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                The insurer’s duty to indemnify depends on the facts
                proven and whether the damages caused by the
                actions or omissions proven are covered by the terms
                of the policy. Evidence is usually necessary in the
                coverage litigation to establish or refute an insurer’s
                duty to indemnify. 7
      The major issue in this case is whether the underlying judgment, which
established that Hallmark infringed the copyrights of KFA by constructing
homes from KFA’s designs without a license to do so, triggered coverage for an
“advertising injury” under the policy terms.
                3.     Policy Language

      Five successive one-year policies were in effect from May 28, 2004 to May
28, 2009, but the relevant language is the same in each. Under COVERAGE B
PERSONAL AND ADVERTISING INJURY LIABILITY, the policies provide:
                a. We will pay those sums that the insured becomes
                legally obligated to pay as damages because of
                “personal and advertising injury” to which this
                insurance applies. We will have the right and duty to
                defend the insured against any “suit” seeking those
                damages. However, we will have no duty to defend the
                insured against any “suit” seeking damages for
                “personal and advertising injury” to which this
                insurance does not apply. We may, at our discretion,
                investigate any offense and settle any claim or “suit”
                that may result. . . .
      The policies define “personal and advertising injury” as “injury . . .
arising out of one or more of the following offenses: . . . infringing upon
another’s copyright, trade dress or slogan in your ‘advertisement.’” Section V.1
of the policies defines “advertisement” as follows:
                1. “Advertisement” means a notice that is broadcast or
                published to the general public or specific market
                segments about your goods, products or services for


      7   Id. at 744 (citations omitted).
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              the purpose of attracting customers or supporters. For
              the purposes of this definition:
                    a. Notices that are published include material
                    placed on the Internet or on similar electronic
                    means of communication; and
                    b. Regarding web-sites, only that part of a web-
                    site that is about your goods, products or
                    services for the purpose of attracting customers
                    or supporters is considered an advertisement.
        Finally, the policies provide an exclusion for most copyright infringement
except for infringement in advertisements:
              2. Exclusions
              This insurance does not apply to:
                    i. Infringement Of Copyright,            Patent,
                    Trademark Or Trade Secret
                    “Personal and advertising injury” arising out of
                    the     infringement of copyright, patent,
                    trademark, trade secret or other intellectual
                    property rights.
              However, this exclusion does not apply to
              infringement, in your “advertisement”, of copyright,
              trade dress or slogan.
III.    MID-CONTINENT OWES A DUTY TO INDEMNIFY.
        Mid-Continent argues: (a) there is no coverage because the prior
judgment did not concern an “advertising injury” on its face; (b) KFA relied
primarily on the use of the houses as “advertisements,” but a house cannot be
an advertisement under the policies; (c) KFA has not shown sufficient
causation under the policies; and (d) assuming it can recover at all, KFA failed
to segregate covered damages from non-covered damages. We find no merit in
any of these arguments.




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       A.     The Hallmark Judgment Adjudicated The Facts Necessary
              To Establish An “Advertising Injury” If A Model Home Can
              Be An “Advertisement” Under The Policy.
       Mid-Continent argues that the policy language cited above does not cover
the copyright infringement judgment in this case because the previous
judgment said nothing of “advertising injury,” and the jury never had to decide
whether there was an advertising injury. Mid-Continent’s interpretation of the
prior judgment is also too narrow.
       In its order on cross motions for summary judgment, the district court
set out the following test for determining whether a policy covers “advertising
injury”: “(1) the allegations in the underlying complaint must raise a ‘potential’
for liability under one of the covered offenses stated in the policy; (2) the
insured must have engaged in ‘advertising activity’ during the policy period
when the alleged ‘advertising injury’ occurred; and (3) there must be a causal
connection between the alleged injury and the ‘advertising activity.’” 8 The
district court concluded that the Hallmark judgment directly established an
“advertising injury” under that test because, even though the prior verdict did
not “identically mirror” the policy language, the prior judgment:
              conclusively establishes Hallmark’s liability to KFA
              for copyright infringement, including copyright
              infringement    committed     in    connection     with
              Hallmark’s ‘advertising.’ That is a covered offense
              explicitly stated in Mid–Continent’s policies.
              Additionally, the record conclusively establishes that
              Hallmark engaged in “advertising activities” (in both
              website and print advertising and the use of infringing
              houses in its marketing activities) during the policy
              periods. 9



       8 2014 WL 3417544 at *3 (citing Bay Elec. Supply, Inc. v. Travelers Lloyds Ins. Co., 61
F.Supp.2d 611, 615 (S.D. Tex. 1999), and Sentry Ins. v. R.J. Weber Co., Inc., 2 F.3d 554 (5th
Cir. 1993)).
       9 Id. (citations to record omitted).

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      Mid-Continent correctly argues that the district court applied the wrong
test. The test the district court used was based on duty to defend cases, which,
as noted above, rely on the eight-corners doctrine (i.e., the language of the
complaint and the language of the policy) to determine whether the plaintiff
has stated a potentially coverable claim. 10 Instead, the district court should
have applied the duty to indemnify test set out in Horton: “The insurer’s duty
to indemnify depends on the facts proven and whether the damages caused by
the actions or omissions proven are covered by the terms of the policy. Evidence
is usually necessary in the coverage litigation to establish or refute an insurer’s
duty to indemnify.” 11
      That does not change the result here under de novo review, however.
Mid-Continent’s emphasis on the prior judgment’s failure to specifically refer
to an “advertising injury” is an unduly narrow view of the “facts proven” rule.
As the Texas Supreme Court noted in Horton, a coverage suit often requires
the parties to submit evidence of facts which were not specifically covered at
the earlier trial. In footnote 3 of Horton, the court cited with approval a Fifth
Circuit case applying Texas law in which this court reasoned:
             Finally, we find that the district court properly
             concluded that Appellees may present evidence at trial
             regarding facts necessary to determine coverage that
             were not adjudicated in the underlying case. The
             underlying case often does not resolve all the factual
             issues necessary to determine coverage because issues
             relevant to the question of coverage can be irrelevant
             to the question of the insured’s liability. See Utica
             Nat’l Ins. Co. of Tex. v. Am. Indem. Co., 141 S.W.3d
             198, 204 (Tex. 2004) (“It may sometimes be necessary
             to defer resolution of indemnity issues until the
             liability litigation is resolved.”). . . . Therefore, courts


      10 Bay Electric Supply and Sentry addressed the duty to defend, not the duty to
indemnify, with respect to the pleadings test.
      11 300 S.W.3d at 744.

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              are not precluded from making factual findings in
              coverage actions. Otherwise, insureds . . . can never
              establish coverage whenever there is an underlying
              trial and an issue irrelevant to liability but essential
              to coverage. 12
       In this case, the issue of “advertising injury” was irrelevant to copyright
infringement liability but is essential to coverage under the policy. For the
copyright infringement claim, the jury was only required to find that Hallmark
infringed KFA’s copyright with respect to the 11 home designs, not to make a
special finding concerning whether or not that infringement took place in an
“advertisement” within the terms of the policy.
       Because the jury determined that the houses themselves infringed KFA’s
copyright, the determinative question for coverage under the policies is
whether the houses themselves were “advertisements” such that the jury
verdict potentially gives rise to coverage as an “injury . . . arising out of . . .
infringing upon another’s copyright, trade dress or slogan in your
‘advertisement.’” The outcome here is determined both by the policy language
and by the fact that KFA has presented ample evidence that Hallmark used
the infringing houses for marketing purposes, and Mid-Continent has never
offered any evidence to the contrary.
       B.     Under The Policy Terms And The Uncontroverted Facts,
              The Infringing Houses Were “Advertisements.”
       Even though the prior suit did not require KFA to present evidence
concerning advertising, KFA presented a great deal of evidence on the subject.
KFA has always contended that Hallmark infringed KFA’s copyright in its
advertisements       and     that     the     structures     themselves       constituted
advertisements. Beyond these contentions, KFA presented evidence that the



       12Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. Puget Plastics Corp., 532 F.3d 398,
404 (5th Cir. 2008) (footnote omitted).
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houses themselves were used to attract customers, in addition to evidence of
website and print promotional materials. Indeed, on appeal in this case, Mid-
Continent concedes that KFA presented evidence that the houses themselves
were Hallmark’s primary form of marketing. 13
       One of Hallmark’s representatives testified in deposition in this suit that
homebuyers never bought houses sight unseen, but rather would look at the
model homes Hallmark built as well as elevations and floor plans in the sales
office or on the website. In addition, Hallmark put up yard signs with its
contact information on the sites of homes it built to attract customers.
       Mid-Continent does not dispute the fact that Hallmark used the
infringing homes themselves to market to customers, so we must accept that
fact as true under Rule 56. Rather than attack the facts, Mid-Continent argues
that an infringing house can never be an “advertisement” under the policies as
a matter of law. Again, the policies define “advertisement” as “a notice that is
broadcast or published to the general public or specific market segments about
your goods, products or services for the purpose of attracting customers or
supporters.” Mid-Continent argues that, under the policy terms and common
sense, a house cannot be a “notice,” and it cannot be “broadcast or published.”
Mid-Continent cites no controlling authority that might require the narrow
reading proposed.
       It is important to note that the policies never specify that “notice” must
take any particular form (e.g., a writing or a website) and never exclude from
the definition a physical object, nor do they define “broadcast” or “published.”
Among other things, the Oxford English Dictionary defines “notice” sweepingly
as the “act of imparting information” or “something which imparts



       13Mid-Continent also concedes that Hallmark infringed KFA’s copyright in at least
one non-house advertisement, but the bulk of its appeal focuses on whether or not the houses
were “advertisements” under the policies.
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information.” 14 The few cases interpreting the policy language at issue here (“a
notice that is broadcast or published”) have construed “notice” very broadly. 15
Under the policy language, such notice need only be broadcast or published to
qualify as an advertisement. While “broadcast” generally implies radio or
television advertisement, 16 “publish” is much more comprehensively defined as
“to make public or generally known” or “to make generally accessible or
available for acceptance or use (a work of art, information, etc.); to present to
or before the public.” 17 Thus, the policy language does not support the
restrictions Mid-Continent proposes.
       Texas law also does little to limit the policies’ expansive definition of
“advertisement.” In Sport Supply Grp., Inc. v. Columbia Cas. Co., 335 F.3d 453
(5th Cir. 2003), we summarized Texas law on the subject:
               The Texas Supreme Court, in another context, adopted
               the following definition of “advertise”:
                      To    advise,   announce,    apprise,
                      command, give notice of, inform,
                      make known, publish. On [(sic.)] call
                      to the public attention by any means
                      whatsoever. Any oral, written, or
                      graphic statement made by the seller in


       14   See “notice, n.” OED Online. December 2014. Oxford University Press.
http://www.oed.com/view/Entry/128591 (accessed February 23, 2015).
        15 See AMCO Ins. Co. v. Lauren-Spencer, Inc., 500 F. Supp. 2d 721, 728-29 (S.D. Ohio

2007) (“Nowhere in that definition are the specific requirements that AMCO seeks to impose,
and the insurance company’s reliance on the term ‘notice’ to backdoor the requirements into
the policy is of no avail.”); Acuity v. Ross Glove Co., 2012 WI App 70, ¶¶ 12-13, 344 Wis. 2d
29, 42-43, 817 N.W.2d 455, 462 (Wis. Ct. App. 2012) (finding that “Ross Glove packaging,
with its distinctive shape, form and appearance, is a ‘notice’ that, for the purpose of attracting
customers, misrepresents Ross Glove’s packaged products as those of Seirus”).
        16 The Oxford English Dictionary defines “broadcast” in part as “[t]o disseminate (a

message, news, a musical or dramatic performance, or any audible or visible matter) from a
radio or television transmitting station to the receiving sets of listeners and viewers; said
also of a speaker or performer.” See “broadcast, v.” OED Online. December 2014. Oxford
University Press. http://www.oed.com/view/Entry/23508 (accessed February 23, 2015).
        17 See “publish, v.” OED Online. December 2014. Oxford University Press.

http://www.oed.com/view/Entry/154072 (accessed February 23, 2015).
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                     any manner in connection with the
                     solicitation of business and includes,
                     without      limitation     because       of
                     enumeration,         statements        and
                     representations made in a newspaper or
                     other publication or on radio or television
                     or contained in any notice, handbill, sign,
                     catalog, or letter, or printed on or
                     contained in any tag or label attached to
                     or accompanying any merchandise.
               Smith v. Baldwin, 611 S.W.2d 611, 614–15 (Tex. 1980)
               (interpreting the term “advertising” under the Texas
               Deceptive Trade Practices Act); see First State Bank v.
               Keilman, 851 S.W.2d 914, 922 (Tex. App.—Austin
               1993, writ denied). The Texas Supreme Court
               further indicated that “advertising” is a
               “marketing device[] designed to induce the
               public to patronize” a particular establishment.
               Smith, 611 S.W.2d at 615; see id. (suggesting that
               “advertising” is “a public notice drawing
               attention to” the attributes of a business).The
               Texas Supreme Court’s definition of “advertising”
               would seem to accord with our common understanding
               of the term as referring to a device for the solicitation
               of business. See Frog, Switch & Mfg. Co. v. Travelers
               Ins. Co., 193 F.3d 742, 748 (3d Cir. 1999). . . . 18
      In this case, it is undisputed that Hallmark’s primary means of
marketing its construction business was through the use of the homes
themselves, both through model homes and yard signs on the property of
infringing homes it had built, all of which were marketed to the general public.
Mid-Continent even contends there is no evidence that Hallmark’s customers
saw any marketing materials other than the houses themselves. Under the
undisputed facts, Hallmark’s use of the infringing houses satisfies not only the
policies’ expansive definition of “advertisement” and Texas law’s similarly



      18   335 F.3d at 462-63 (emphasis added).
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broad construction of the term but also common sense. 19 We therefore conclude
that the infringing houses in this case, as used by Hallmark, all qualify as
“advertisements” under the policies. 20
       C.     Hallmark’s Liability In The Prior Judgment Was “Because
              Of” A Covered Advertising Injury.
       The policies provide that Mid-Continent “will pay those sums that the
insured becomes legally obligated to pay as damages because of ‘personal and
advertising injury,’” which the policy defines as “injury . . . arising out of one
or more of the following offenses: . . . infringing upon another’s copyright, trade
dress or slogan in your ‘advertisement.’” Because we conclude that Hallmark
infringed KFA’s copyright in its advertisement, the policies define the resulting
injury as an “advertising injury,” i.e., an injury arising out of the infringement
in the advertisement. KFA’s judgment against Hallmark therefore is because
of that advertising injury. Under the plain language of the policy, Mid-
Continent owes a duty to indemnify.




       19  We have found one other case that addressed the use of homes in the “advertising
injury” context, and it, too, found that such marketing triggered coverage. See King v. Cont’l
W. Ins. Co., 123 S.W.3d 259, 265 (Mo. Ct. App. 2003) (noting that “one of the best ways to
advertise the goods and services of a building constructor is to put signs outside of
construction sites so that potential customers can tie the quality of workmanship to the
builder” and that “[a] contractor putting its sign up next to the home it is building, without
stating so, is placing it there to attract the attention of potential homebuyers.”).
        20 We are not swayed by Mid-Continent’s argument that the policy excludes coverage

for Hallmark’s marketing activities because advertising necessarily is an activity or item
distinct from the product being advertised. See Ekco Group, Inc. v. Travelers Indem. Co. of
Ill., 273 F.3d 409 413 (1st Cir. 2001) (“Although the term ‘advertising’ has a range of
meanings, the one that leaps to mind in reading this policy is what is surely the most common
use: as a reference to advertising in newspaper, radio, television, or other familiar media
where the advertisement is an activity or item distinct from the product being advertised.”);
and Krueger Int’l, Inc. v. Fed. Ins. Co., 647 F. Supp. 2d 1024, 1035 (E.D. Wis. 2009)) (citing
cases for that proposition). These cases do not take into account the facts peculiar to
Hallmark’s business and the broad policy language at issue here. Here, the use of the homes
unquestionably was Hallmark’s primary—indeed, nearly only—means of marketing its
services.
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      Mid-Continent argues that the district court applied the wrong causation
standard to draw a link between the prior judgment and coverage under the
policies, but Mid-Continent has not offered any reasonable construction of the
policy language that would preclude coverage. Mid-Continent also argues that
to prove an “advertising injury,” a plaintiff must prove that the infringing
advertisement swayed a particular buyer’s decision, but the policies do not
contain such a requirement, and we find no case law to support that
proposition.
      D.       KFA Is Not Barred From Recovery Under The Concurrent
               Causation Doctrine.
      Mid-Continent argues that even if the houses are treated as
“advertisements,” the damages award in the prior judgment included both
covered “advertising injury” damages (for the infringement in Hallmark’s
advertisements, including the use of model homes) and non-covered damages
for infringement in the construction and sale of the houses themselves. Thus,
Mid-Continent argues, all of the damages are barred under the concurrent
causation doctrine, citing Utica, supra. The argument is without merit because
even assuming arguendo that we were to find two distinct kinds of
infringement in the prior judgment, the damages would not be subject to the
concurrent causation doctrine.
      In Utica, the Texas Supreme Court explained:
               Texas courts and the Fifth Circuit applying Texas law
               have recognized a distinction between cases involving
               “separate     and    independent”     causation       and
               “concurrent” causation when both covered and covered
               [sic] and excluded events cause a plaintiff’s injuries. In
               cases involving separate and independent causation,
               the covered event and the excluded event each




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                 No. 14-50649 consolidated with No. 14-50673
             independently cause the plaintiff’s injury, and the
             insurer must provide coverage despite the exclusion. 21
Among other examples of the separate and independent causation doctrine, the
court cited Guaranty Nat’l Ins. Co. v. North River Ins. Co., 909 F.2d 133, 137
(5th Cir. 1990), in which we held that a patient’s suicide was proximately
caused by both a hospital’s failure to secure its windows and its failure to
supervise the patient, such that an exclusion under the policy for liability “due
to . . . the rendering of or failure to render . . . any service or treatment
conducive to health or of a professional nature. . .” did not apply. 22
      The Texas Supreme Court explained, on the other hand, that
             [i]n cases involving concurrent causation, the excluded
             and covered events combine to cause the plaintiff’s
             injuries. Because the two causes cannot be separated,
             the exclusion is triggered. See Travelers Indem. Co. v.
             Citgo Petroleum Corp., 166 F.3d 761, 771–72 (5th Cir.
             1999) (holding that, under Texas law, liability for
             failing to follow separate corporate safety standards
             was necessarily derivative of excluded negligent
             driving claim); Burlington Ins. Co. v. Mexican Am.
             Unity Council, 905 S.W.2d 359, 363 (Tex. App.-San
             Antonio 1995, no writ) (holding that, because
             negligent supervision of youth home resident and the
             assault and battery which caused her injuries were not
             “separate and independent,” an assault and battery
             exclusion applied); Thornhill v. Houston Gen. Lloyds,
             802 S.W.2d 127, 130 (Tex. App.-Fort Worth 1991, no
             writ) (holding that, because the claims were “related
             and interdependent,” sale-to-minors exclusion in
             general liability policy applied to claims that a store
             was negligent in selling alcohol to minors as well as
             training its employee on permissible purchases). 23




      21 141 S.W.3d at 204.
      22 909 F.2d at 135.
      23 Utica, 141 S.W.3d at 204.

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                   No. 14-50649 consolidated with No. 14-50673
        In the prior suit, KFA claimed that Hallmark infringed its copyright in
a number of ways, but that infringement gave rise to a single recovery. Even
if, as Mid-Continent urges, we could distinguish between copyright
infringement in the construction and sale of the houses and infringement in
Hallmark’s use of the houses as advertisements, copyright law does not
distinguish between those infringements for purposes of damages. Under 17
U.S.C. § 504, KFA was entitled to choose between either actual damages and
profits (subsection (b)) or statutory damages (subsection (c)) for each
infringement. KFA ultimately was awarded actual damages in the prior
judgment under § 504(b):
                 (b) Actual Damages and Profits.--The copyright
                 owner is entitled to recover the actual damages
                 suffered by him or her as a result of the infringement,
                 and any profits of the infringer that are attributable to
                 the infringement and are not taken into account in
                 computing the actual damages. In establishing the
                 infringer’s profits, the copyright owner is required to
                 present proof only of the infringer’s gross revenue, and
                 the infringer is required to prove his or her deductible
                 expenses and the elements of profit attributable to
                 factors other than the copyrighted work. 24
        In essence, copyright law would have granted KFA the full recovery for
any type of infringement. There is no correlation between one type of
infringement and any other. Because infringement in an advertisement would
give rise to precisely the same damages as infringement by construction and
sale, the two causes are separate and independent, and the full recovery
therefore is covered as an advertising injury.
IV.     MID-CONTINENT HAS NOT ASSERTED A VIABLE DEFENSE.
        Because we conclude that KFA has satisfied its burden of proving
coverage under the terms of the policies, the burden shifts to Mid-Continent to


        24   17 U.S.C. § 504(b) (West 2012).
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                No. 14-50649 consolidated with No. 14-50673
prove that an exclusion applies. 25 If Mid-Continent succeeds in doing so, the
burden shifts back to KFA to prove some exception to the exclusion. 26 In this
coverage, suit, however, Mid-Continent may be barred from re-litigating an
issue if: “(1) the issue raised in the coverage suit was raised and determined in
the liability suit; (2) the issue determined in the liability suit was essential to
the judgment in the liability suit; and (3) the necessary requirement of privity
exists between the insurer and the insured.” 27 It is clear that Mid-Continent
was in privity with Hallmark for the liability issues (i.e., whether or not
Hallmark committed copyright infringement) but was not in privity with
respect to coverage issues.
       A.     Mid-Continent Has Failed To Prove That The Breach Of
              Contract Exclusion Applies.
       Mid-Continent relies on the rule that if an exclusion is even incidentally
related to conduct that would otherwise be covered, the exclusion trumps. 28
Mid-Continent first points to the policies’ breach of contract exclusion, which
provides:
              f. Breach of Contract
              “Personal and advertising injury” arising out of a
              breach of contract, except an implied contract to use
              another’s advertising idea in your “advertisement”.
       Mid-Continent relies on the fact that KFA and Hallmark had entered
into at least three architectural services agreements. It argues that Hallmark’s
failure to prepay for the reuse licenses of KFA’s designs constituted a breach
of contract. Mid-Continent relies on the testimony of KFA’s representative at



       25 Gilbert Texas Const., L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118, 124
(Tex. 2010).
       26 Id.
       27 Mid-Continent Cas. Co. v. Bay Rock Operating Co., 614 F.3d 105, 110 (5th Cir. 2010)

(Bay Rock).
       28 Mid-Continent cites Sport Supply, supra; and Gemini Ins. Co. v. The Andy Boyd Co.

LLC, 243 F. App’x 814, 815 (5th Cir. 2007).
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                No. 14-50649 consolidated with No. 14-50673
trial that Hallmark failed to follow the contract’s requirement to notify KFA of
its intent to reuse KFA’s designs.
      In the prior suit, KFA stated a claim only for copyright infringement, not
breach of contract, and neither KFA nor Hallmark argued in the prior trial
that Hallmark breached the agreements. KFA contended that the
consequences of Hallmark’s failure to secure a reuse license were already
addressed in the agreements themselves by stipulating that Hallmark’s
licenses would lapse. Notwithstanding the agreements’ provisions terminating
its licenses, Hallmark argued unsuccessfully that KFA never terminated the
agreements, so it had granted Hallmark an implied license to continue using
KFA’s designs. The agreements provided, in relevant part:
            Client’s failure to pay all charges for services
            requested by Client, including fees for purchase of
            license for reuse of plan(s), shall make this granting of
            the right to reuse plan(s) null and void. Client’s right
            to reuse plans lapses if Client fails to report
            construction and remit payment for license for a period
            of one year, or fails to report construction for
            application of prepaid license fees for a period of one
            year.
      The entire prior suit was based on copyright infringement, which could
only have arisen after the clause stripped Hallmark of its license. All of the
damages in the prior judgment arose under copyright law, not breach of
contract law. These facts, coupled with the fact that neither KFA nor Hallmark
ever argued there was a breach of contract, suggest that the prior judgment
was not related to breach of contract. We conclude that Mid-Continent has
failed to carry its burden of proving that the breach of contract exclusion
applies.
      B.    Mid-Continent Has Failed To Prove That The “Prior
            Publication” Exclusion Applies.
      Mid-Continent also argues that the “prior publication” exclusion applies:

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                  No. 14-50649 consolidated with No. 14-50673
              c. Material Published Prior To Policy Period
              “Personal and advertising injury” arising out of oral or
              written publication of material whose first publication
              took place before the beginning of the policy period.
       Mid-Continent claims that the purpose of the exclusion is to preclude
coverage where the risk had already materialized prior to the beginning of
coverage. There is some question as to whether the exclusion would apply to a
string of distinct acts of copyright infringement, as opposed to the situation
where an advertisement was published prior to the policy period but continued
to give rise to harm afterward. 29 We need not address that issue here, however,
because under the broadest interpretation, Mid-Continent has failed to carry
its burden of proving the exclusion applies.
       The first policy period began on May 28, 2004. Mid-Continent has not
pointed to any infringement or other advertising injury prior to that date. Mid-
Continent asserts, for example, that KFA provided artwork for a certain house
plan, the Versailles model, in 2003, and that Hallmark began using it in
brochures that were available in model homes within a month. It also points
to the fact that Hallmark put the Versailles plan on its website prior to May
28, 2004. The record also shows that the Versailles model was first built or sold
on January 13, 2004. The record reveals was no other home built prior to May
28, 2004. Because Hallmark retained its license until it built the second copy
of the home without a reuse license, none of the pre-policy conduct infringed
KFA’s copyright. Even under a broad construction of the “prior publication”
exclusion, Mid-Continent has not carried its burden of proving that any
“advertising injury” occurred prior to the first policy period.




       See, e.g., Ryland Grp., Inc. v. Travelers Indem. Co. of IL, No. CIV. A-00-CA-233 JRN,
       29

2000 WL 33544086, at *8 (W.D. Tex. Oct. 25, 2000) (footnotes omitted) (discussing cases).
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               No. 14-50649 consolidated with No. 14-50673
      Next, Mid-Continent argues that the prior publication exclusion applies
to each infringing advertisement within the policy periods, so Mid-Continent
is not liable to pay under later policy periods for advertisements that were first
published under earlier policy periods. Because the five insurance agreements
are virtually identical and Mid-Continent remained the insurer throughout,
Mid-Continent still would be liable for the consequences of the advertising
injuries, all of which began during a covered period. Mid-Continent has shown
no reason why the distinction would make a difference. In sum, the “prior
publication” exclusion does not apply to these facts.
      C.       Mid-Continent Is Not Entitled To Assert A Defense To The
               Copyright Infringement Because The Issue Of Copyright
               Infringement Was Adjudicated In The Prior Suit.
      Next, Mid-Continent argues that, under § 120(a) of the Architectural
Works Copyright Protection Act, 17 U.S.C. § 120(a), Hallmark’s use of KFA’s
designs did not actually constitute copyright infringement. Even though the
prior case involved copyright infringement, Mid-Continent claims it is not
barred from litigating this issue now because it is a “coverage defense.”
      In connection with coverage, Mid-Continent cannot ignore or relitigate
facts actually established in the prior liability case. 30 The jury in the prior suit
specifically determined that Hallmark infringed KFA’s copyright. Because
Mid-Continent’s § 120(a) defense would require the court to overturn that
finding, Mid-Continent may not assert it.
      D.       KFA Sufficiently Established The Amount Of Its Damages.
      Mid-Continent argues that the policies cover when offenses occur and
not when sales occur, so KFA cannot recover unless it ties each particular
offense to one of the five policy periods rather than treating them as one five-
year policy. As established above, Mid-Continent has not pointed to any offense



      30   Bay Rock, 614 F.3d at 110.
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                No. 14-50649 consolidated with No. 14-50673
that took place prior to the first policy period. Mid-Continent also has not
shown that KFA was awarded damages for any offense or sale that took place
after the policy periods. Thus, all offenses or sales for which the district court
awarded KFA damages must have taken place within one of the five policy
periods. Mid-Continent was the insurer during all five policy periods. At best,
this argument presents a distinction without a difference.
V.     KFA IS ENTITLED TO THE FULL AWARD OF ATTORNEY’S
       FEES.
       Finally, Mid-Continent argues that, even if KFA wins on the coverage
issue and is therefore entitled to attorney’s fees under Tex. Civ. Prac. & Rem.
Code § 38.001 for breach of the insurance contract, the district court erred in
awarding fees based on the contingency fee agreement between KFA and its
attorneys minus a reduction for time spent outside of the breach of insurance
contract claim, which represents a total recovery outside of costs of 33.8%. 31
Mid-Continent argues that Texas requires lodestar evidence for attorney’s fees.
That is not accurate. Texas courts permit otherwise reasonable contingency fee
awards under § 38.001.
       Interpreting Texas law, the Fifth Circuit permitted the imposition of a
contingency fee in Mathis v. Exxon Corp., 302 F.3d 448 (5th Cir. 2002):
             First, there is a rebuttable presumption of
             reasonableness for fees that are “usual” or
             “customary.” Tex. Civ. Prac. & Rem. Code § 38.003
             (Vernon 2002). Second, where the fees are tried to the
             court, as they were in this case, the statute authorizes
             the judge to take judicial notice of the “usual and
             customary fees” and the contents of the case file. Id. at
             § 38.004. Texas courts have upheld fee awards using
             these presumptions where the attorneys had a
             contingent fee arrangement. Laredo Indep. Sch. Dist.
             v. Trevino, 25 S.W.3d 263 (Tex. App.—San Antonio


        The district court awarded a net fee of $1,091,362.72, compared to the underlying
       31

judgment of $3,231,084.00, or approximately 33.8% of the judgment.
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                    No. 14-50649 consolidated with No. 14-50673
               2000, review denied) (40% contingency fee); European
               Crossroads’ Shopping Ctr., Ltd. v. Criswell, 910
               S.W.2d 45, 58–59 (Tex. App.—Dallas 1995, writ
               denied) (upholding jury award of 35% based only on
               attorney’s own testimony). Plaintiffs’ attorneys
               supported their fees by submitting an affidavit drafted
               by lead counsel and an affidavit of an attorneys’ fees
               expert. Exxon countered by challenging the
               reasonableness of the total award. Under Texas law,
               the two affidavits, combined with the presumption of
               reasonableness and the court’s ability to use judicial
               notice to guide the reasonableness finding is enough
               for us to conclude that the district court did not abuse
               its discretion in awarding fees as contemplated by
               plaintiffs’ contingency fee contract. 32
      The Texas Supreme Court recently noted that lodestar evidence is not
required for contingency fee awards but is required if a claimant wants to go
above the contingency fee calculation:
               In addition to the lodestar method, the attorney’s fee
               affidavit also indicates the Griffins and their attorneys
               agreed to a 35% contingency fee arrangement, which
               the affidavit claims is reasonable and customary for
               such a suit. Even if supporting evidence is not required
               for the contingency fee method of proof (as it is for the
               lodestar method), the contingency fee method cannot
               support the trial court’s fee award here because the
               final judgment awarded no monetary relief except for
               attorney’s fees. Because the contingency fee method
               cannot support the trial court’s fee award, and no
               legally sufficient evidence supports the award under
               the lodestar method, we remand to redetermine
               attorney’s fees. 33
      Mid-Continent’s argument rests entirely on the proposition that KFA
failed to submit lodestar evidence. Because Texas law does not require lodestar
evidence for contingency fee arrangements and because Mid-Continent has not


      32   Id. at 462 (footnote omitted).
      33   Long v. Griffin, 442 S.W.3d 253, 256 (Tex. 2014) (emphasis added).
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              No. 14-50649 consolidated with No. 14-50673
shown that the fee is unreasonable, we cannot say that the district court
abused its discretion in awarding the fee.
VI.     CONCLUSION
        For the reasons set forth above, we AFFIRM.




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