     Case: 16-50892      Document: 00514129754         Page: 1    Date Filed: 08/24/2017




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

                                                                                    FILED
                                                                                August 24, 2017
                                      No. 16-50892
                                                                                 Lyle W. Cayce
                                                                                      Clerk
CERTAIN UNDERWRITERS AT LLOYD'S OF LONDON, Syndicate
BRIT2987 Subscribing to Policy Number BRIT13329,

               Plaintiff - Appellee

v.

STERLING CUSTOM HOMES, INCORPORATED,

               Defendant - Appellant




                   Appeal from the United States District Court
                        for the Western District of Texas
                             USDC No. 1:15-CV-1032


Before HIGGINBOTHAM, GRAVES, and HIGGINSON, Circuit Judges.
JAMES E. GRAVES, JR., Circuit Judge:*
       This appeal concerns financial responsibility for losses caused by fire
damage at a construction site. The general contractor’s insurer has paid the
general contractor, and has obtained a state-court judgment against a
subcontractor for the damages.




       * 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 R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH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.
    Case: 16-50892     Document: 00514129754     Page: 2   Date Filed: 08/24/2017



                                  No. 16-50892
      Below, the district court ruled on summary judgment that the
subcontractor’s insurer owes no coverage for the losses. Because the district
court adopted an erroneous interpretation of the subcontractor’s insurance
policy, we REVERSE the district court’s summary judgment ruling, VACATE
the final judgment, and REMAND for further proceedings consistent with this
opinion.
                               BACKGROUND
      Sterling Custom Homes, Inc. (“Sterling Homes”), the general contractor
for a residential construction project in Austin, Texas, subcontracted with
Silvestre Espinoza’s painting company. The subcontracting agreement
obligated Espinoza to obtain, and to name Sterling Homes as an additional
insured under, a commercial general liability insurance policy.
      Espinoza bought such a policy (the “Lloyd’s policy”) from Certain
Underwriters at Lloyd’s of London, Syndicate BRIT2987, Subscribing to Policy
Number BRIT13329 (“the Syndicate”). An “additional insured endorsement”
extended blanket additional insured coverage to other entities under the
Lloyd’s policy “as per written contract[s].”
      In March 2015, a fire caused substantial damage to the construction
project. Great American Assurance Company (“Great American”), the insurer
responsible for Sterling Homes’s builder’s risk insurance policy, paid Sterling
Homes approximately $1.28 million for losses related to the fire. Then, having
become subrogated to Sterling Homes’s rights, Great American filed a lawsuit
in Texas state court in Sterling Homes’s name against Espinoza.
      The Syndicate soon filed a declaratory judgment action in the federal
Western District of Texas. The Syndicate sought a declaration that (1) a
provision in Espinoza’s Lloyd’s policy called the cross suits exclusion barred
any coverage obligation in connection with Sterling Homes’s state-court action
against Espinoza, (2) the Syndicate owed no duty to defend Espinoza in that
                                        2
    Case: 16-50892     Document: 00514129754     Page: 3   Date Filed: 08/24/2017



                                  No. 16-50892
suit, and (3) if the Lloyd’s policy provides any coverage, coverage is limited to
$100,000 under the policy’s fire-damage provision.
      The district court granted the Syndicate’s motion for summary
judgment. In its order, the district court declared that Espinoza’s Lloyd’s policy
“does not provide coverage for the property damage arising out of the state
court action” between Sterling Homes and Espinoza and ruled that the
Syndicate “has no duty to defend” Espinoza in the state-court suit.
      On January 26, this court granted Sterling Homes’s motion to
supplement the record on appeal with three documents pertaining to the
state-court suit. These documents reflect a November 29, 2016 partial
summary judgment against Espinoza on Sterling Homes’s negligence claim, a
damages award totaling $1,281,447.45 in connection with that judgment, and
a January 4, 2017 dismissal without prejudice of all of Sterling Homes’s other
claims against Espinoza.
                               JURISDICTION
      Federal subject matter jurisdiction based on diversity exists under 28
U.S.C. § 1332. The Syndicate has demonstrated that its sole underwriting
member is a British corporation, so it carries United Kingdom citizenship for
purposes of federal diversity jurisdiction. Sterling Homes and Espinoza are
Texas citizens. The Syndicate bears sole responsibility for the risk insured by
Espinoza’s Lloyd’s policy, and the amount of potential insurance coverage in
controversy in this case greatly exceeds $75,000.
      The district court entered a final judgment in favor of the Syndicate on
June 22, 2016. Sterling Homes timely noticed its appeal on July 13, 2016. This
court has appellate jurisdiction pursuant to 28 U.S.C. § 1291.
                           STANDARD OF REVIEW
      “This court reviews a district court’s grant of summary judgment de
novo, applying the same standards as the district court.” Johnson v. World All.
                                        3
      Case: 16-50892   Document: 00514129754    Page: 4   Date Filed: 08/24/2017



                                 No. 16-50892
Fin. Corp., 830 F.3d 192, 195 (5th Cir. 2016). “Interpretation of an insurance
contract is a question of law . . . reviewed de novo” on appeal from summary
judgment. Tesoro Ref. & Mktg. Co., L.L.C. v. Nat’l Union Fire Ins. Co. of
Pittsburgh, Pennsylvania, 833 F.3d 470, 473 (5th Cir. 2016).
       “Summary judgment is appropriate if ‘there is no genuine issue as to any
material fact and . . . the moving party is entitled to a judgment as a matter of
law.’” Johnson, 830 F.3d at 195 (quoting Celotex Corp. v. Catrett, 477 U.S. 317,
322 (1986) and Fed. R. Civ. P. 56(a)). “A genuine dispute of material fact exists
‘if the evidence is such that a reasonable jury could return a verdict for the
nonmoving party.’” Id. (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
248 (1986)). “On a motion for summary judgment, this Court must view the
facts in the light most favorable to the non-moving party and draw all
reasonable inferences in its favor.” Id. (quoting Deville v. Marcantel, 567 F.3d
156, 163–64 (5th Cir. 2009)) (brackets omitted).
                                DISCUSSION
 I.    Choice of law
       “In a diversity case involving the interpretation of a contract, we apply
the substantive law of the forum state, including its choice-of-law rules.”
McLane Foodservice, Inc. v. Table Rock Restaurants, L.L.C., 736 F.3d 375, 377
(5th Cir. 2013). The district court applied Texas rules of contract
interpretation, and the parties do not contest the application of Texas law in
their appellate briefing.
       “This court reviews de novo a district court’s choice of law
determination,” Mayo v. Hartford Life Ins. Co., 354 F.3d 400, 403 (5th Cir.
2004), and we agree with the district court’s decision to apply Texas law.
“Texas courts use the ‘most significant relationship’ test set forth in the
Restatement (Second) of Conflict of Laws (1971) for all choice of law cases
except contract cases in which the parties have agreed to a valid choice of law
                                       4
      Case: 16-50892      Document: 00514129754          Page: 5      Date Filed: 08/24/2017



                                       No. 16-50892
clause.” Id. (citing Duncan v. Cessna Aircraft Co., 665 S.W.2d 414, 420–21 (Tex.
1984)). The parties point to no choice of law clause in the Lloyd’s policy, and
Texas has the most significant relationship to this dispute. 1 Espinoza, a Texas
citizen, purchased his Lloyd’s policy in connection with his subcontract for
work on a Texas construction project. Although we attribute U.K. citizenship
to the Syndicate, it has not suggested that English law should bear on the
interpretation of Espinoza’s policy. We therefore analyze the Lloyd’s policy
under Texas law.
II.    Texas principles of interpretation
       “Under Texas law, we interpret insurance policies using the same rules
of interpretation and construction applicable to contracts generally.” Tesoro,
833 F.3d at 474 (citing American Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d
154, 157 (Tex. 2003)). The policy “should be interpreted as a whole and in
accordance with the plain meaning of its terms.” Great Am. Ins. Co. v. Primo,
512 S.W.3d 890, 892 (Tex. 2017). “We must construe the policy such that no
provision is rendered meaningless.” Tesoro, 833 F.3d at 474 (citing Schaefer,
124 S.W.3d at 157). “If an insurance contract ‘is worded so that it can be given




       “Section 6 of the Restatement lists several general factors to be used by courts in
       1

making choice of law determinations:
              a) the needs of the interstate and international systems;
              b) the relevant policies of the forum;
              c) the relevant policies of other interested states and the relative interests of
       those states in the determination of the particular issue;
              d) the protection of justified expectations;
              e) the basic policies underlying the particular field of law;
              f) certainty, predictability, and uniformity of result; and
              g) ease in determination and application of the law to be applied.”
       Id. at 403–04 (citing Restatement (Second) of Conflict of Laws § 6(2) (1971)).

                                               5
      Case: 16-50892   Document: 00514129754      Page: 6    Date Filed: 08/24/2017



                                   No. 16-50892
a definite or certain legal meaning, then it is not ambiguous.’” Id. (quoting
Schaefer, 124 S.W.3d at 157) (alterations omitted).
       In Texas, “[t]he goal of contract interpretation is to ascertain the parties’
true intent as expressed by the plain language they used.” Primo, 512 S.W.3d
at 893. “‘Plain meaning’ is a watchword for contract interpretation because
word choice evinces intent.” Id. Texas law “refuse[s] to insert language or
provisions the parties did not use or to otherwise rewrite private agreements.”
Id.
       “Any disagreement about the meaning of the contract does not render it
ambiguous; instead, the contract must be ‘susceptible to two or more
reasonable interpretations.’” Tesoro, 833 F.3d at 474 (quoting Schaefer, 124
S.W.3d at 157). “[A] contract is ambiguous only when the application of
pertinent rules of interpretation to the face of the instrument leaves it
genuinely uncertain which one of two or more meanings is the proper
meaning.” Id. (quoting RSUI Indem. Co. v. Lynd Co., 466 S.W.3d 113, 119 (Tex.
2015)). “If we determine a contract is ambiguous, we must adopt the
interpretation favoring the insured.” Id. (citing RSUI Indem., 466 S.W.3d at
118). “Whether an insurance contract is ambiguous is a question of law.” Id.
(citing Schaefer, 124 S.W.3d at 157).
       “If an insurer relies on a policy’s exclusions to deny that it has a duty to
defend, ‘it bears the burden of proving that one or more of those exclusions
apply.’” Fed. Ins. Co. v. Northfield Ins. Co., 837 F.3d 548, 552–53 (5th Cir. 2016)
(quoting Trinity Universal Ins. Co. v. Emp’rs Mut. Cas. Co., 592 F.3d 687, 692
(5th Cir. 2010)). “Courts must ‘construe the exclusion narrowly, resolving any
ambiguity in favor of the insured.’” Id. at 553 (quoting City of Coll. Station,
Tex. v. Star Ins. Co., 735 F.3d 332, 337 (5th Cir. 2013)).




                                         6
       Case: 16-50892    Document: 00514129754     Page: 7   Date Filed: 08/24/2017



                                   No. 16-50892
III.    Relevant contractual provisions
        Three contractual provisions are relevant to our analysis. The first comes
from Sterling Homes’s subcontracting agreement with Espinoza, while the
second and third appear in Espinoza’s Lloyd’s insurance policy.
           A. Subcontracting agreement
        The subcontracting agreement between Sterling Homes and Espinoza
required Espinoza to maintain an insurance policy for “General Liability.” The
agreement also required Espinoza to name Sterling Homes “as an additional
insured” under Espinoza’s policy.
        In relevant part, the agreement stated:
              Prior to commencing performance of work at the
              Project, Subcontractor agrees to furnish and maintain
              in full force Certificates of Insurance until completion
              and a final acceptance of Subcontractor’s work on the
              Project, at Subcontractor’s sole cost and expense, as
              required by Sterling Custom Homes, Inc., covering
              Workmen’s Compensation and General Liability with
              limits not less than $500,000/$1,000,000/$500,000 and
              automobile motor vehicle insurance (owned, non-
              owned and hired) with limits not less than $1,000,000
              Combined Single Limit for bodily injury and property
              damage or loss. Subcontractor shall name Sterling
              Custom Homes, Inc. as an additional insured on all
              such Certificates of Insurance.
           B. Lloyd’s policy’s “cross suits” exclusion
        Espinoza’s Lloyd’s policy includes a “cross suits” exclusion. The provision
excludes coverage for:
              “Bodily injury”, “property damage”, “personal and
              advertising injury” or any injury, loss or damage
              arising out of any claim, “suit”, action or other
              proceeding or any allegation or expense initiated or
              caused to be brought about by any insured covered by
              this policy against any other insured covered by this
              policy.

                                          7
      Case: 16-50892   Document: 00514129754      Page: 8   Date Filed: 08/24/2017



                                  No. 16-50892
          C. Lloyd’s policy’s “additional insured” endorsement
       Espinoza’s Lloyd’s policy is modified by an endorsement concerning
coverage for “additional insured[s].”
       The endorsement states:
             Who Is An Insured (Section II) is amended to include
             as an insured the person or organization shown in the
             Schedule, but only with respect to liability arising out
             of your ongoing operations performed for that insured.
       The “Schedule,” in turn, states:
             Name of Person or Organization:
             BLANKET ADDITIONAL INSURED,
             As Per Written Contract.
IV.    Analysis of the Policy
       To avoid the cross suits exclusion, Sterling Homes argues that its state
court suit against Espinoza does not present litigation between two insureds.
We must therefore determine the meaning of and relationship between the
Lloyd’s policy’s cross suits exclusion and additional insured endorsement.
          A. Interpreting the cross suits exclusion
       Sterling Homes argues that the cross suits exclusion is ambiguous
because it does not specify whether it applies to both named insureds and
additional insureds. We disagree. “If an insurance contract ‘is worded so that
it can be given a definite or certain legal meaning, then it is not ambiguous.’”
Tesoro, 833 F.3d at 474 (quoting Schaefer, 124 S.W.3d at 157) (alterations
omitted). Sterling Homes urges us to find ambiguity concerning whether “any
insured” encompasses “additional insured[s].” But the phrase “any insured”
can easily be given a “definite or certain legal meaning,” see id., by interpreting
it to mean any party made an insured under the policy, regardless of whether
the party becomes insured by purchasing the policy directly or through the
additional insured endorsement.


                                          8
    Case: 16-50892     Document: 00514129754      Page: 9   Date Filed: 08/24/2017



                                  No. 16-50892
      Sterling Homes endeavors to avoid this plain-text conclusion by
contending it would conflict with other parts of the policy. Sterling Homes
relies upon the Eleventh Circuit’s Twin City opinion, which held that applying
a similar cross suits exclusion “to indemnity obligations owed by a named
insured to an additional insured . . . would nullify the core of the additional
insured coverage provision.” See Twin City Fire Ins. Co. v. Ohio Cas. Ins. Co.,
480 F.3d 1254, 1262 (11th Cir. 2007) (applying Alabama law).
      Texas law, like the Alabama law at issue in Twin City, requires holistic
interpretations. But it also counsels reliance on terms’ “plain meaning.” See
Primo, 512 S.W.3d at 892 (stating that a policy “should be interpreted as a
whole and in accordance with the plain meaning of its terms”). In this case, our
decision to interpret the cross suits exclusion in accordance with its plain text
—“any insured” means any insured entity, without regard to how the entity
obtained insurance—does not nullify the policy’s additional insured provision.
         B. Interpreting the additional insured endorsement
      We turn to the question of whether Sterling Homes was an additional
insured (and thus an insured for purposes of the cross suits exclusion) when it
sued Espinoza. Sterling Homes contends the additional insured endorsement
only applies when Sterling Homes faces liability as a result of Espinoza’s
conduct. The Syndicate disagrees.
      The Lloyd’s policy’s additional insured endorsement adds entities listed
on a specific Schedule to the list of insureds, “but only with respect to liability
arising out of your [i.e., Espinoza’s] ongoing operations performed for that
insured.” The parties’ interpretive dispute turns on whether the endorsement
refers to Espinoza’s liability or Sterling Homes’s.
      We conclude that the additional insured endorsement makes Sterling
Homes an insured only with respect to Sterling Homes’s liability arising out of
Espinoza’s ongoing operations for Sterling Homes. “The goal of contract
                                        9
    Case: 16-50892       Document: 00514129754          Page: 10     Date Filed: 08/24/2017



                                       No. 16-50892
interpretation is to ascertain the parties’ true intent as expressed by the plain
language they used.” Primo, 512 S.W.3d at 893. The plain language of the
additional insured endorsement comports with our interpretation, and we
conclude our interpretation most likely reflects the parties’ true intentions. For
example, our interpretation recognizes the likelihood that Espinoza, the
policy’s purchaser, intended to buy from the Syndicate a commercial general
liability policy that provided him coverage for claims made against him by his
general contractors. Similarly, nothing in the plain language of the
subcontracting agreement obligating Espinoza to name Sterling Homes as an
additional insured suggests the parties intended for Espinoza to lose insurance
coverage in the event Sterling Homes needed to sue him.
       Because we conclude Sterling Homes was not an additional insured
under the Lloyd’s policy with respect to its state-court litigation against
Espinoza, we hold that the district court erred when it determined that the
cross suits exclusion applied to that litigation.
                                     CONCLUSION
       For the reasons set forth above, we REVERSE the district court’s
summary judgment ruling, VACATE the final judgment, and REMAND for
further proceedings consistent with this opinion.
       We have confined our review to the issues considered by the district
court, and we express no opinion on the effect of other policy provisions the
district court did not analyze. 2




       2 The Syndicate cited no legal authority in support of its argument that the default
judgment and declaration of no coverage the district court entered against Espinoza will
prevent the district court from providing relief to Sterling Homes. Accordingly, we deem that
argument waived. See, e.g., In re Bouchie, 324 F.3d 780, 786 (5th Cir. 2003) (finding briefing
inadequate and an argument waived where the party “cite[d] no authority for [a]
proposition”).
                                             10
