                                                                         F I L E D
                                                                  United States Court of Appeals
                                                                          Tenth Circuit
                UNITED STATES COURT OF APPEALS                            JUN 24 1998

                               TENTH CIRCUIT                         PATRICK FISHER
                                                                                 Clerk



 BORDER BOLT COMPANY, INC., a
 Texas Corporation,

          Plaintiff-Counter Defendant-
          Appellant,
                                                        No. 97-1007
 v.                                                 (D.C. No. 94-D-2858)
                                                          (D. Colo.)
 TWIN CITY FIRE INSURANCE
 COMPANY, an Indiana Corporation,

          Defendant-Counter Claimant-
          Appellee.




                         ORDER AND JUDGMENT *


Before SEYMOUR, Chief Judge, LOGAN and MURPHY, Circuit Judges.


      Border Bolt Co., Inc. (Border Bolt) brought this action against Twin City

Fire Insurance Co. (TCF) in state court, asserting four causes of action arising out

of TCF’s failure to defend Border Bolt in a breach of contract case involving

Border Bolt’s installation of defective bolts in a pedestrian bridge at Denver

      *
       This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
International Airport (DIA). TCF removed the action to federal district court.

The district court granted summary judgment in favor of TCF on its counterclaim

for declaratory relief, holding TCF had no duty to defend Border Bolt in the

underlying suit and no duty to indemnify it for amounts paid in settlement and for

attorneys’ fees. Border Bolt appeals and we affirm.

      We review the grant or denial of summary judgment de novo applying the

same standards as the district court. See Lowe v. Angelo’s Italian Foods, Inc., 87

F.3d 1170, 1173 (10th Cir. 1996). Summary judgment is appropriate if the

evidence before the court, when viewed in the light most favorable to the

nonmoving party, demonstrates that no genuine issue of material fact exists and

that the moving party is entitled to judgment as a matter of law. See Seymore v.

Shawver & Sons, Inc., 111 F.3d 794, 797 (10th Cir. 1997).

      A lengthy recitation of the facts is unnecessary. It is undisputed that

Border Bolt installed defective bolts in the DIA bridge. The only issue is whether

Border Bolt’s insurer, TCF, had a duty to defend Border Bolt.

      Under the policy terms, which include comprehensive general liability

coverage, TCF had a duty to defend Border Bolt in the underlying action if the

plaintiffs therein had alleged in their complaint that Border Bolt’s installation of

the defective bolts was an “occurrence” resulting in “property damage” within the

meaning of the policy. Aplt. App. at 227. The policy defines “property damage”


                                         -2-
as follows:

      a.      Physical injury to tangible property, including all resulting loss of
              use of that property. All such loss of use shall be deemed to occur at
              the time of the physical injury that caused it; or
      b.      Loss of use of tangible property that is not physically injured.
              All such loss shall be deemed to occur at the time of the
              “occurrence” that caused it.

Id. at 238. The policy does not apply to “‘[p]roperty damage’ to ‘[the named

insured’s] product’ arising out of it or any part of it.” Id. at 229. Under Texas

law, which applies here, courts construing similar insurance provisions have held

that coverage for “property damage” excludes the insured’s own work, thereby

precluding insureds from recovering “‘for any costs incurred in repairing and

replacing the[ir] work product.’” Hartford Cas. Co. v. Cruse, 938 F.2d 601, 604

(5th Cir. 1991) (quoting Todd Shipyards Corp. v. Turbine Serv., Inc., 674 F.2d

401, 423 (5th Cir. 1982)). As such, the parties agree that in order to demonstrate

covered “property damage,” the complaint in the underlying action must have

alleged damage to the bridge apart from repair and replacement of the defective

bolts. See Gar-Tex Constr. Co. v. Employers Cas. Co., 771 S.W.2d 639, 643

(Tex. Ct. App. 1989); Eulich v. Home Indem. Co., 503 S.W.2d 846, 849 (Tex. Ct.

App. 1973).

      Border Bolt offers three arguments to support its position that the district

court erred in concluding no such property damage was alleged: 1) that mere

incorporation of defective materials damages the property into which it is

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incorporated; 2) that the underlying complaint alleged actual physical damage to

the bridge; and 3) that even if the complaint did not explicitly allege such

damage, it is sufficiently ambiguous to permit the admission of extrinsic evidence

demonstrating that the underlying plaintiffs intended to claim physical damage to

the bridge. We address these arguments in turn.

      Border Bolt contends that under Texas law, the mere incorporation of its

defective product into the bridge constitutes “property damage.” We disagree.

The Texas Court of Appeals specifically rejected an insured’s contention that

incorporation of its defective product into a structure by itself results in “property

damage” to the structure within the meaning of the policy. General Mfg. Co. v.

CNA Lloyd’s of Tex., 806 S.W.2d 297, 299-300 (Tex. Ct. App. 1991). In denying

coverage, the court noted that the underlying claim merely sought repayment for

replacing the insured’s defective product and did not allege any diminution in

value or actual injury to the third party’s property in which the defective product

was incorporated. Id. at 300. 1 The key question, therefore, is whether the


      1
       The cases cited by Border Bolt simply do not support its “incorporation”
theory. In all these cases, the underlying complaints clearly allege that the
insured’s defective product caused actual damage to another’s property or that the
necessary removal of the defective product resulted in physical injury to the
property. See Stonewall Ins. Co. v Asbestos Claims Management, 73 F.3d 1178,
1208-09 (2d Cir. 1995); LaFarge Corp. v. Hartford Cas. Ins. Co., 61 F.3d 389,
394-94 (5th Cir. 1995); Eljer Mfg., Inc. v. Liberty Mut. Ins. Co., 972 F.2d 805,
807 (7th Cir. 1992); Cruse, 938 F.2d at 602 & n.1; Dayton Indep. Sch. Dist. v.
                                                                       (continued...)

                                          -4-
plaintiffs in the underlying action alleged actual physical damage to the bridge.

      Under Texas law, whether a complaint triggers an insurer’s duty to defend

is determined solely by reference to the face of the pleadings and the insurance

policy, the so-called “eight corners” rule. See Cullen/Frost Bank of Dallas, 852

S.W.2d 252, 255 (Tex. Ct. App. 1993). “The duty to defend arises if the factual

allegations against the insured, when fairly and reasonably construed, state a

cause of action potentially covered by the policy.” Id. In determining an

insurer’s duty to defend, “the court must focus on the factual allegations that

show the origin of the damages rather than on the legal theories alleged.”

Duncanville Diagnostic Ctr., Inc. v. Atlantic Lloyd’s Ins. Co., 875 S.W.2d 788,

789 (Tex. Ct. App. 1994); see also Canutillo Indep. Sch. Dist. v. Nat’l Union Fire

Ins. Co., 99 F.3d 695, 703-04 (5th Cir. 1996). It is therefore the facts pleaded in

the complaint that control, not the mere mention of consequential damages. See

Fidelity & Guaranty Ins. Underwriters, Inc., v. McManus, 633 S.W.2d 787, 788


      1
        (...continued)
National Gypsum Co., 682 F. Supp. 1403, 1407 (E.D. Tex. 1988), rev’d on other
grounds sub nom. W.R. Grace & Co. v. Continental Cas. Co., 896 F.2d 865 (5th
Cir. 1990).
       In fact, the “incorporation” doctrine does not define what constitutes
“property damage” at all. Rather, the rule governs when, for purposes of the
coverage period, damage is said to occur. Under the rule, if an insured work
product is incorporated into a larger structure, and the structure (as opposed to
the work product) is ultimately damaged as a result of the defective work by the
insured, the damage will be said to have occurred at the moment the defective
items were incorporated. See Eljer Mfg., 972 F.2d at 807, 814.

                                         -5-
(Tex. 1982) (“If the petition only alleges facts excluded by the policy, the insurer

is not required to defend.”).

      Although it is undisputed that the underlying plaintiffs alleged no facts

explicitly suggesting that the bridge itself was damaged by the defective bolts,

Border Bolt asserts the complaint nevertheless created a duty to defend by

including consequential damages in the request for relief. Because damage to the

bridge could fall within the definition of consequential damages, Border Bolt

maintains that the complaint created a duty to defend. This is an incorrect

characterization of the law. In this case, the complaint addressed only damages

resulting from the repair and replacement of the defective bolts. Texas law is

clear that Border Bolt is not entitled to coverage for damage to that part of the

bridge that constituted its own work. See General Mfg. Co., 806 S.W.2d at 300;

Gar-Tex, 771 S.W.2d at 643. Since the complaint contains no facts alleging

property damage to other parts of the bridge, Border Bolt cannot avert summary

judgment based on the factual allegations in the complaint. 2



      2
        In addition to asserting an “incorporation” theory of property damage,
Border Bolt appears to argue that summary judgment was inappropriate because
the insertion of defective bolts into the bridge was an “occurrence,” which also
triggers coverage under the policy. An “occurrence” takes place “where the
resulting injury or damage was unexpected or unintended, regardless of whether
the policyholder’s acts were intentional.” Dayton Indep. Sch. Dist., 682 F.Supp.
at 1408. Even so, the “occurrence” does not give rise to the duty to defend if the
underlying complaint does not allege property damage. See Cruse, 938 F.2d 604-

                                         -6-
      Finally, Border Bolt asserts that the underlying plaintiffs’ mention of

consequential damages renders the complaint ambiguous and that the district

court erred by not considering extrinsic evidence which would have created a fact

question on whether the plaintiffs did in fact allege “property damage.” We are

not persuaded. Texas law requires us to consider only the facts contained in the

complaint. LaFarge Corp. v. Hartford Cas. Ins. Co., 61 F.3d 389, 393-94 (5th Cir.

1995); Duncanville Diagnostic Ctr., 875 S.W.2d at 789. As we have already

noted, the complaint contains no allegation of property damage to the bridge.

Since the complaint is not ambiguous, we need not consider extrinsic evidence

even if we were permitted to do so by Texas law, a question we decline to reach

in this diversity case. See LaFarge, 61 F.3d at 394 (rule allowing admission of

extrinsic evidence is a “narrow exception” to construe “truly ambiguous

complaints”). 3

      In sum, because the complaint did not allege “property damage” under

Texas law, TCF had no duty to defend Border Bolt in the underlying action. The


      2
          (...continued)
05.

      Border Bolt cites no case, and we have found none, in which a Texas court
      3

has admitted extrinsic evidence in a case similar to this one. Rather, the cases
Border Bolt cites for its contention that consideration of extrinsic evidence is
appropriate concern situations in which an insured appears to have intentionally
concealed or misrepresented facts that would have excluded coverage. See
LaFarge, 61 F.3d at 394-95 n.8.

                                        -7-
fact that the underlying plaintiffs made no claim for covered “property damage”

in turn dictates the conclusion that TCF had no duty to indemnify Border Bolt for

amounts paid in settlement and attorneys’ fees in the underlying lawsuit.

      We AFFIRM the district court’s order granting summary judgment in favor

of TCF and dismissing the action in its entirety.

                                              ENTERED FOR THE COURT


                                              Stephanie K. Seymour
                                              Chief Judge




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