     Case: 16-20195   Document: 00514621050    Page: 1   Date Filed: 08/29/2018




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

                                No. 16-20195                        FILED
                                                              August 29, 2018
                                                                Lyle W. Cayce
LYDA SWINERTON BUILDERS, INCORPORATED,                               Clerk

             Plaintiff-Appellee/Cross-Appellant

v.

OKLAHOMA SURETY COMPANY,

             Defendant-Appellant/Cross-Appellee




                Appeals from the United States District Court
                     for the Southern District of Texas


Before DAVIS, GRAVES, and COSTA, Circuit Judges.
JAMES E. GRAVES, JR., Circuit Judge:
      We withdraw our prior opinion, Lyda Swinerton Builders, Inc. v.
Oklahoma Surety Co., 877 F.3d 600 (5th Cir. 2017), and substitute the
following in light of the Texas Supreme Court’s opinion on rehearing in USAA
Texas Lloyds Co. v. Menchaca, 545 S.W.3d 479 (2018).
      This case involves several issues of Texas law relating to an insurer’s
duty to defend and the damages that an insured may recover when an insurer
breaches that duty. The district court, after disposing of much of the case
through a series of partial summary judgment rulings and conducting a bench
trial on one remaining claim, issued a final judgment that largely (though not
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                                No. 16-20195
entirely) favored the insured. The insurer and the insured now cross-appeal
from that judgment. We AFFIRM in part and REVERSE in part.
                             I. BACKGROUND
A. The Project and the Subcontract
       Lyda Swinerton Builders, Inc. (“LSB”) is a Texas-based general
contractor. In November 2003, LSB was hired to build a ten-story office
building in College Station, Texas. LSB, in turn, hired numerous
subcontractors, among them A.D. Willis Company, Inc. (“Willis”). The
subcontract agreement between LSB and Willis, which dates to April 2005,
defined the scope of Willis’ work as “ROOFING, ORNAMENTAL METAL,
METAL WALL PANELS, and ROUGH CARPENTRY.” The subcontract
required Willis to maintain a general liability insurance policy designating
LSB as an additional insured with respect to liabilities arising out of Willis’
work    under   the   subcontract.   The   subcontract   also   contained    an
indemnification provision, which read:
       TO THE FULLEST EXTENT PERMITTED BY LAW,
       SUBCONTRACTOR AGREES TO DEFEND, HOLD HARMLESS
       AND UNCONDITIONALLY INDEMNIFY CONTRACTOR AND
       OWNER . . . AND ALL PARTIES WHOM CONTRACTOR IS
       REQUIRED TO INDEMNIFY PURSUANT TO THE TERMS OF
       THE CONTRACT DOCUMENTS, AGAINST AND FOR ALL
       LIABILITY, COSTS, EXPENSES, CLAIMS, LIENS, CITATIONS,
       PENALTIES, FINES, ATTORNEYS’ FEES, LOSSES, AND
       DAMAGES WHICH CONTRACTOR MAY AT ANY TIME
       SUFFER OR SUSTAIN OR BECOME LIABLE FOR BY REASON
       OF ANY ACCIDENTS, DAMAGES, OR INJURIES EITHER TO
       THE PERSONS OR PROPERTY OR BOTH OF CONTRACTOR,
       OWNER OR SUBCONTRACTOR, OR OF THE WORKERS OF
       SUCH PARTIES, OR OF ANY OTHER PARTIES, OR TO THE
       PROPERTY OF ANY PARTY, IN ANY MANNER ARISING OUT
       OF    OR    RESULTING    FROM     SUBCONTRACTOR’S
       PERFORMANCE OR FAILURE TO PERFORM HEREUNDER,
       OR FAILURE OR DEFECTS IN MATERIALS OR GOODS
       SUPPLIED BY OR ON BEHALF OF SUBCONTRACTOR,
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                                   No. 16-20195
      INCLUDING, BUT NOT LIMITED TO, ANY NEGLIGENT ACT
      OR OMISSION OR CLAIM INVOLVING STRICT LIABILITY OR
      NEGLIGENCE PER SE OF CONTRACTOR OR OWNER, THEIR
      OFFICERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES,
      AGENTS, CONTRACTOR’S SURETY AND ALL PARTIES
      WHOM CONTRACTOR IS REQUIRED TO INDEMNIFY
      PURSUANT TO THE TERMS OF THE CONTRACT
      DOCUMENTS.

      THE COVERAGE OF ANY INSURANCE POLICY REQUIRED
      HEREIN OR ACTUALLY CARRIED BY SUBCONTRACTOR
      SHALL NOT LIMIT THE EXTENT OF SUBCONTRACTOR’S
      LIABILITY UNDER THE FOREGOING INDEMNITY.

Before returning the signed subcontract to LSB, Willis’ president made several
handwritten changes to the document, including striking out the portion of the
indemnification provision indicated above. LSB did not countersign the
subcontract, and there is no evidence in the record that LSB noticed or objected
to Willis’ alterations.
B. The OSC Policy
      Willis subsequently obtained a commercial general liability insurance
policy from Oklahoma Surety Company (“OSC”) with a policy period of
February 1, 2006 to February 1, 2007. The OSC Policy identified Willis as the
“Named Insured” and as a “COMMERCIAL ROOFING CONTRACTOR.” The
policy provided that:
      [OSC] will pay those sums that the insured becomes legally
      obligated to pay as damages because of “bodily injury” or “property
      damage” to which this insurance applies. [OSC] will have the right
      and duty to defend the insured against any “suit” seeking those
      damages. However, [OSC] will have no duty to defend the insured
      against any “suit” seeking damages for “bodily injury” or “property
      damage” to which this insurance does not apply. [OSC] may, at
      [its] discretion, investigate any “occurrence” and settle any claim
      or “suit” that may result.



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                                  No. 16-20195
      The policy contained an endorsement naming “Lyda Builders & its
parent & affiliated companies” as additional insureds, “but only with respect
to liability directly attributable to [Willis’] performance of ‘[Willis’] work’ for
[LSB and LSB’s parent and affiliates].” Elsewhere, the policy defined Willis’
“work” as “[w]ork or operations performed by [Willis] or on [its] behalf” and
“[m]aterials, parts or equipment furnished in connection with such work or
operations.” The endorsement also stated that it applied “only when [Willis]
ha[s] agreed by written ‘insured contract’ to designate [LSB and its parents
and affiliates] as an additional insured subject to all provisions and limitations
of this policy.” The term “insured contract” was defined to include “[t]hat part
of any other contract or agreement pertaining to [Willis’] business . . . under
which [Willis] assume[s] the tort liability of another party to pay for ‘bodily
injury’ or ‘property damage’ to a third person or organization. Tort liability
means a liability that would be imposed by law in the absence of any contract
or agreement.” The term “property damage” was defined as:
      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 of use shall be deemed to occur at the time of the
         ‘occurrence’ that caused it.

C. The Underlying State-Court Lawsuit
      In January 2005, the owner of the College Station project assigned its
interest in the contract with LSB to Adam Development Properties, L.P.
(“ADP”). On February 12, 2008, ADP filed an original petition in Texas state
court against LSB and LSB’s parent company. That petition sought damages
against LSB for breach of contract and alleged, in pertinent part, that:
    LSB entered into the contract for the project on or about November 17,
      2003; the date of commencement of the project was December 1, 2003;

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                             No. 16-20195
  and the projected deadline for substantial completion was January 28,
  2005.
 “It has now been well over four years since commencement of the project,
  and approximately three years since the contractual deadline for
  substantial completion expired, and the project is still far from being
  substantially complete. Throughout the course of the project, LSB’s
  performance of the Work under the contract documents has been marked
  by numerous material deficiencies. Without limitation, the portions of
  the Work affected by such deficiencies include the exterior granite
  façade, the curtain wall systems, the punch window systems, the precast
  panel connections, the roof, the dormers, the rotunda, the joint sealant,
  the drywall, the fire protection systems, the HVAC systems, and the
  electrical systems.”
 “In addition, LSB has consistently failed to comply with its contractual
  obligations to adequately supervise work performed by subcontractors;
  to supply sufficient skilled workers and suitable materials necessary to
  complete the Work in accordance with the contract documents; to take
  adequate protective measures to prevent damage to the Work resulting
  from exposure to the elements; to timely provide monthly project reports
  and project schedules; to promptly pay monies owed to subcontractors;
  and to resolve, remove or discharge liens filed against the project by
  subcontractors.”
 “In the months prior to February 1, 2008, many of LSB’s subcontractors
  had already removed their crews, heavy equipment, machinery, and
  tools from the project jobsite. Since that date, LSB and the few remaining
  subcontractors still at the jobsite removed most of their heavy
  equipment, machinery, and tools . . . .”


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                                 No. 16-20195
    For these and other reasons, “on February 13, 2008, pursuant to the
      terms of the contract documents, ADP terminated the contract.”
      In April 2011, LSB filed third-party petitions against various companies,
including Willis. On November 17, 2011, ADP filed its first amended petition,
the factual allegations of which were essentially the same as those in the
original petition. In addition to the breach of contract claim, the first amended
petition added claims against LSB for negligence and misrepresentation. The
negligence claim asserted that LSB breached its duty to “exercise ordinary care
in connection with the project, including but not limited to the duty to exercise
ordinary care in the supervision of its subcontractors,” thereby “caus[ing]
property damage separate and apart from its scope of work under the contract
documents.” The first amended petition referred to Willis as a third-party
defendant, but did not expressly identify it as a subcontractor.
      On October 31, 2012, ADP filed a second amended petition. That petition
was very similar to the previous petitions. This time, however, ADP identified
Willis (and others) as “Third-Party Defendants” and incorporated specific
references to them throughout the pleading. In particular, the second amended
petition alleged:
    “Throughout the course of the project, [LSB]’s performance of the work
      under the contract documents (and the work of the Third-Party . . .
      Defendants, for which [LSB] is responsible) was marked by numerous
      material deficiencies. These deficiencies were a product of [LSB]’s (and
      the Third-Party . . . Defendants’, for which [LSB] is responsible)
      negligence. This negligence caused loss of use of the building and
      property damage separate and apart from [LSB]’s scope of work under
      the contract documents. Without limitation, the portions of the work
      damaged and affected by such deficiencies include the exterior granite
      façade, the curtain wall systems, the punch window systems, the precast
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                                  No. 16-20195
      panel connections, the roof, the dormers, the rotunda, the joint sealant,
      the drywall, the fire protection systems, the HVAC systems, and the
      electrical systems.”
    With respect to the negligence claim against LSB, the second amended
      petition again alleged that LSB breached its “duty to exercise ordinary
      care in the supervision of its subcontractors” and added that LSB’s
      “negligence (and the negligence of the Third-Party . . . Defendants, for
      which [LSB] is responsible) proximately caused property damage
      separate and apart from [LSB]’s scope of work under the contract
      documents.”
D. LSB’s Requests for Defense
      In a letter dated August 18, 2011, LSB requested that OSC provide it
with “defense and indemnification as an additional insured” under the OSC
Policy in connection with ADP’s original petition. OSC denied that request in
October 2011. LSB requested that OSC provide it with a defense against the
first amended petition on July 6, 2012 and against the second amended petition
on November 21, 2012. OSC denied both of those requests as well. LSB also
requested defense and indemnification from various other insurance
companies, some of which had issued policies directly to LSB and others of
which had issued policies to LSB’s subcontractors. Like OSC, many of these
insurers denied LSB’s requests.
E. The Federal Suit
      In June 2012, one of the insurers that had denied LSB’s request for
defense filed a declaratory judgment action in federal district court, naming
ADP, LSB, and another party as defendants. LSB thereafter filed a third-party
complaint in the same action against OSC and seven other insurers. In its
second amended third-party complaint, LSB sought damages and declaratory
relief against OSC and the other insurers for: breach of contract based on their
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                                No. 16-20195
failure to defend LSB in the state court lawsuit; violations of Chapter 541 of
the Texas Insurance Code; and violations of Texas’ Prompt Payment of Claims
Act (“PPCA”).
      The state and federal lawsuits proceeded simultaneously for a time, but
by some point in 2013, all the claims had been settled, save for those between
LSB and OSC. In June 2014, the district court granted partial summary
judgment in LSB’s favor, finding that OSC owed a duty to defend LSB against
ADP’s second amended petition. In June 2015, the district court decided
several additional motions for partial summary judgment, ruling that: OSC
owed a duty to defend LSB under ADP’s original petition; OSC breached its
duty to defend LSB and was therefore liable to LSB for damages, including
defense fees and costs; and OSC violated the PPCA by breaching its duty to
defend, thereby entitling LSB to recover damages for that violation as well.
The court denied OSC’s motion for partial summary judgment, which asserted,
among other things, that OSC did not have a duty to defend LSB due to an
insurance law concept known as the “anti-stacking rule.” After conducting a
bench trial on LSB’s claim for violations of Chapter 541 of the Texas Insurance
Code, the district court ruled that LSB had not met its burden of proving that
it had “suffered injury separate and apart from the denial of benefits it was
owed under the OSC Policy.” Concluding that this circuit’s precedent precluded
LSB from recovering extra-contractual damages in the absence of such
“independent injury,” the district court rendered judgment in favor of OSC on
that claim.
      On September 25, 2015, the district court entered a final judgment and
ordered OSC to pay LSB:
    $655,600.27 for breaching the duty to defend and violating the PPCA;
    a statutory penalty of 18 percent per annum under the PPCA, with
      $296,209.69 having accrued through August 20, 2015, and $323.32
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                                  No. 16-20195
      accruing each day thereafter “until the date of payment of this
      judgment”; and
    reasonable attorney’s fees and costs.
      On February 23, 2016, the district court entered an amended final
judgment that included an award of pre-judgment interest to LSB. OSC then
filed a motion to alter, amend, or correct the amended final judgment, which
the district court denied.
      This appeal followed.
                               II. DISCUSSION
      OSC appeals several of the district court’s summary judgment rulings
and two of its damages rulings. LSB cross-appeals from the district court’s
ruling denying its claim under Chapter 541 of the Texas Insurance Code.
A. OSC’s Appeal of the Summary Judgment Rulings
      OSC challenges the district court’s grant of summary judgment in favor
of LSB on OSC’s duty to defend, OSC’s breach of that duty, and OSC’s liability
under the PPCA. OSC also appeals the denial of its partial motion for summary
judgment based on the anti-stacking rule. We review grants and denials of
summary judgment de novo. United States v. Corpus, 491 F.3d 205, 209 (5th
Cir. 2007). Summary judgment is appropriate when “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 this diversity case, Texas substantive
law and federal procedural law apply. See Gasperini v. Ctr. for Humanities,
Inc., 518 U.S. 415, 427 (1996).
   1. OSC’s Duty to Defend
      Under Texas law, the duty to defend obligates an insurer to “defend the
insured in any lawsuit that ‘alleges and seeks damages for an event potentially
covered by the policy.’” Colony Ins. Co. v. Peachtree Constr., Ltd., 647 F.3d 248,
253 (5th Cir. 2011) (quoting D.R. Horton–Texas, Ltd. v. Markel Int’l Ins.
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                                 No. 16-20195
Co., 300 S.W.3d 740, 743 (Tex. 2009)). “The duty to defend depends on the
language of the policy setting out the contractual agreement between insurer
and insured.” Pine Oak Builders, Inc. v. Great Am. Lloyds Ins. Co., 279 S.W.3d
650, 655 & n.28 (Tex. 2009) (“A defense of third-party claims provided by the
insurer is a valuable benefit granted to the insured by the policy,” which
protects the insured “‘against the expense of any suit seeking damages’ covered
by the policy.” (quoting Heyden Newport Chem. Corp. v. S. Gen. Ins. Co., 387
S.W.2d 22, 25 (Tex. 1965))). Whether an insurer has a duty to defend its
insured is a question of law. Ooida Risk Retention Grp., Inc. v. Williams, 579
F.3d 469, 472 (5th Cir. 2009).
      a. LSB’s Status as an “Additional Insured”
      To decide whether OSC had a duty to defend LSB against ADP’s lawsuit,
we must first determine whether LSB qualified as an “additional insured”
under the OSC Policy. See ACE Am. Ins. Co. v. Freeport Welding & Fabricating,
Inc., 699 F.3d 832, 840–41 (5th Cir. 2012) (considering first the question of
“additional insured” status and then determining whether the allegations in
the underlying suit triggered the insurer’s duty to defend the additional
insured); Gilbane Bldg. Co. v. Admiral Ins. Co., 664 F.3d 589, 594 (5th Cir.
2011) (same). Settled rules of contract interpretation apply to this
determination. See ACE Am. Ins., 699 F.3d at 842. Under Texas law, contract
terms are given their plain, ordinary meaning, considered in light of the
contract as a whole, unless the contract itself shows that the parties intended
the terms to have a different, technical meaning. Am. Mfrs. Mut. Ins. Co. v.
Schaefer, 124 S.W.3d 154, 158–59 (Tex. 2003). Ambiguous insurance policy
language must be read “strictly against the insurer and liberally in favor of the
insured.” Lawyers Title Ins. Corp. v. Doubletree Partners, L.P., 739 F.3d 848,
859 (5th Cir. 2014) (internal quotation marks omitted) (quoting Barnett v.
Aetna Life Ins. Co., 723 S.W.2d 663, 666 (Tex. 1987)).
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                                  No. 16-20195
      As mentioned above, the OSC Policy obligates OSC to defend Willis and
any “additional insured” against any suit seeking damages for “property
damage” covered by the policy. According to the endorsement, LSB is an
“additional insured,” provided that Willis has “agreed by written ‘insured
contract’ to designate” LSB as such. The district court concluded that the
subcontract between LSB and Willis satisfied this requirement. We agree.
      OSC maintains that the subcontract cannot be a “written ‘insured
contract’” because LSB did not countersign it. However, the OSC Policy does
not expressly state that the contract must be signed by all the parties to it, and
we do not view the word “written” as imposing that requirement. See Millis
Dev. & Constr., Inc. v. Am. First Lloyd’s Ins. Co., 809 F. Supp. 2d 616, 627 (S.D.
Tex. 2011) (holding that an additional insured provision “only require[d] that
both parties agree in a written contract that one of the parties is to be an
additional insured,” not that “both parties be signers of the written contract in
order for one of the parties to be considered an additional insured”); Nat’l
Union Fire Ins. Co. v. Crocker, 246 S.W.3d 603, 606 (Tex. 2008) (courts must
give the words in an insurance policy “their plain meaning, without inserting
additional provisions into the contract”). To be enforceable, a contract requires
mutual assent, and “[e]vidence of mutual assent in written contracts generally
consists of signatures of the parties and delivery with the intent to bind.”
Baylor Univ. v. Sonnichsen, 221 S.W.3d 632, 635 (Tex. 2007). But as this court
has held, a party may qualify as an additional insured even if the “insured
contract” is not enforceable. Gilbane Bldg. Co. v. Admiral Ins. Co., 664 F.3d
589, 596 (5th Cir. 2011). “Additional insured” status depends, not on the
enforceability of the “insured contract,” but instead on whether the named
insured “agreed to ‘assume the tort liability of another party.’” Id. (emphasis in
original) (citing Mid-Continent Cas. Co. v. Swift Energy Co., 206 F.3d 487, 492–
93 (5th Cir. 2000)). OSC contends the subcontract is deficient in this regard
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due to Willis’ handwritten modification of the indemnification language. Even
if the stricken language is omitted, however, the provision still states that
Willis agrees to “unconditionally indemnify” LSB “to the fullest extent
permitted by law” for “all liability” that LSB incurs for damages “in any
manner arising out of or resulting from [Willis’] performance or failure to
perform” under the subcontract. Thus, with the exception of a subset of claims
involving strict liability and negligence per se, Willis assumed liability for
various tort claims that third parties might bring against LSB. Since the OSC
Policy does not say that Willis must assume all of LSB’s tort liability, we
conclude that the subcontract satisfies the policy’s definition of an “insured
contract.” See Gilbert Tex. Constr., L.P. v. Underwriters at Lloyd’s London, 327
S.W.3d 118, 127 (Tex. 2010) (holding that a party “assumed liability” under a
contract when it undertook obligations beyond those imposed by “general law”);
City of College Station v. Star Ins. Co., 735 F.3d 332, 340 (5th Cir. 2013)
(holding that policy provision excluding liability arising out of “any principle of
eminent domain, condemnation proceeding, [or] inverse condemnation” could
not “reasonably be read to extend to liability arising out of all zoning decisions,”
and noting that ambiguity must be construed in favor of the insured).
      b. The Eight-Corners Rule
      Since LSB qualifies as an additional insured under the OSC Policy, we
turn to whether the allegations in ADP’s lawsuit were sufficient to trigger
OSC’s duty to defend LSB. Texas law uses the “eight-corners” or “complaint-
allegation” rule to determine whether a liability insurer has a duty to defend
an insured against a third-party lawsuit. Laney Chiropractic & Sports
Therapy, P.A. v. Nationwide Mut. Ins. Co., 866 F.3d 254, 259 (5th Cir. 2017);
Zurich Am. Ins. Co. v. Nokia, Inc., 268 S.W.3d 487, 491 (Tex. 2008). Under that
rule, courts look to the facts alleged within the four corners of the petition (or
complaint) in the underlying lawsuit, “measure them against the language
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within the four corners of the insurance policy, and determine if the facts
alleged present a matter that could potentially be covered by the insurance
policy.” Ewing Constr. Co. v. Amerisure Ins. Co., 420 S.W.3d 30, 33 (Tex. 2014)
(emphasis added).
      The eight-corners rule is “very favorable to insureds.” Gore Design
Completions, Ltd. v. Hartford Fire Ins. Co., 538 F.3d 365, 368 (5th Cir. 2008).
The allegations in the petition must be construed liberally in favor of the
insured, and all doubts must be resolved in favor of the duty to defend. Nokia,
268 S.W.3d at 491.
      Where the complaint does not state facts sufficient to clearly bring
      the case within or without the coverage, the general rule is that
      the insurer is obligated to defend if there is, potentially, a case
      under the complaint within the coverage of the policy. Stated
      differently, in case of doubt as to whether or not the allegations of
      a complaint against the insured state a cause of action within the
      coverage of a liability policy sufficient to compel the insurer to
      defend the action, such doubt will be resolved in the insured’s
      favor.

Nat’l Union Fire Ins. Co. v. Merchs. Fast Motor Lines, Inc., 939 S.W.2d 139,
141 (Tex. 1997) (quoting Heyden Newport, 387 S.W.2d at 26); see also Gore
Design, 538 F.3d at 369 (“When in doubt, defend.”). If the petition pleads facts
sufficient to create the potential of covered liability, then the insurer has a duty
to defend the entire case, even if some of the alleged injuries are not covered.
City of College Station, 735 F.3d at 336. While courts may not read facts into
the petition or speculate as to factual scenarios which might trigger coverage
under the policy, they “may draw inferences from the petition that may lead to
a finding of coverage.” Gore Design, 538 F.3d at 369 (internal quotation marks
and citation omitted). The truth or falsity of the allegations is immaterial:
“even if the allegations are groundless, false, or fraudulent the insurer is
obligated to defend.” Nokia, 268 S.W.3d at 491 (internal quotation marks,

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                                       No. 16-20195
brackets, and citation omitted). Moreover, “[w]hen reviewing the pleadings,
courts must focus on the factual allegations, not the asserted legal theories or
conclusions.” Test Masters Educ. Servs., Inc. v. State Farm Lloyds, 791 F.3d
561, 564 (5th Cir. 2015) (citing Ewing Constr., 420 S.W.3d at 33); accord Nat’l
Union Fire Ins., 939 S.W.2d at 141–42 (“‘[T]he court must focus on the factual
allegations that show the origin of the damages rather than on the legal
theories alleged.’” (internal quotation marks and citation omitted)).
       Applying the eight-corners rule, we conclude that OSC had a duty to
defend LSB against ADP’s original petition, as well as the first and second
amended petitions. 1 The original petition alleged that LSB was responsible for
numerous “material deficiencies” affecting various portions of the project,
including “the roof” and structures on or near the roof. In addition, the petition
alleged that LSB failed to “adequately supervise work performed by
subcontractors; to supply sufficient skilled workers and suitable materials
necessary to complete the [w]ork in accordance with the contract documents;
[and] to take adequate protective measures to prevent damage to the [w]ork
resulting from exposure to the elements.” As noted above, the OSC Policy
defines OSC’s duty to defend as encompassing any suit against an insured for
“property damage” to which the policy applies, makes LSB an additional
insured “with respect to liability directly attributable” to Willis’ performance
of its work for LSB, and expressly identifies Willis as a “COMMERCIAL
ROOFING CONTRACTOR.” Reading the original petition liberally, and



       1 The district court awarded LSB damages based on defense costs it incurred when
each of the three petitions was the live pleading. Because OSC’s liability depends on whether
it had a duty to defend LSB at the time those costs were incurred, we must apply the eight-
corners rule to all three petitions. See Rhodes v. Chicago Ins. Co., 719 F.2d 116, 119 (5th Cir.
1983) (noting that “[a] complaint which does not initially state a cause of action under the
policy, and so does not create a duty to defend, may be amended so as to give rise to such a
duty” and “a complaint which does allege a cause of action under the policy so as to create a
duty to defend may be amended so as to terminate the duty”).
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                                  No. 16-20195
resolving any doubts in LSB’s favor, there was at least a potential that ADP’s
suit fell within the policy’s scope of coverage. That was sufficient to trigger
OSC’s duty to defend under the eight-corners rule. And since ADP’s amended
petitions contained more factual detail than the original petition, OSC had a
duty to defend LSB against them as well.
      OSC maintains that the original and first amended petitions failed to
sufficiently allege “property damage.” We disagree. The petitions’ factual
allegations, which refer to numerous deficiencies in the work performed on the
project, plainly fit within the policy’s broad definition of “property damage.”
Although OSC suggests that the original petition did not allege “property
damage” because it sought to recover only for breach of contract, under the
eight-corners rule, “[i]t is not the cause of action alleged that determines
coverage but the facts giving rise to the alleged actionable conduct.” Adamo v.
State Farm Lloyds Co., 853 S.W.2d 673, 676 (Tex. App.—Houston [14th Dist.]
1993, writ denied) (emphasis in original).
      OSC also argues that the original and first amended petitions did not
allege that Willis specifically caused any of the property damage. It is true that
those petitions did not expressly refer to Willis, but they did indicate that
property damage resulted from the actions of “subcontractors” and specifically
mentioned deficiencies in and around the building’s roof. Reading those
allegations in conjunction with the OSC Policy, which expressly identified
Willis as a “commercial roofing contractor,” it requires no more than a logical
inference to conclude that at least some of the alleged property damage was
potentially attributable to Willis. See Global Sun Pools, Inc. v. Burlington Ins.
Co., No. 05-03-00765-CV, 2004 WL 878283, at *2 (Tex. App.—Dallas Aug. 23,




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                                      No. 16-20195
2004, no pet.); 2 Liberty Mutual Ins. Co. v. Graham, 473 F.3d 596, 601 (5th Cir.
2006); Allstate Ins. Co. v. Hallman, 159 S.W.3d 640, 644–45 (Tex. 2005).
       The allegations in all three petitions were also sufficient to support the
inference that “property damage” potentially occurred during the policy period.
The original petition alleged that the project commenced on December 1, 2003,
that some amount of work was done on the project thereafter, and that the
project was effectively abandoned by February 13, 2008. One could reasonably
conclude from these allegations that ADP potentially sought to recover for
“property damage” that occurred sometime during the policy period of
February 1, 2006 to February 1, 2007. Clearly, none of the allegations negated
that possibility. See GEICO Gen. Ins. Co. v. Austin Power Inc., 357 S.W.3d 821,
825 (Tex. App.—Houston [14th Dist.] 2012, pet. denied) (“Nothing in the
pleadings negates the possibility that the injury occurred between December
31, 1969 and December 31, 1970.”). As ADP’s suit did not involve allegations
of “inherently undiscoverable” damages that were only detected outside of the
policy period, OSC’s reliance on Don’s Building Supply, Inc. v. OneBeacon
Insurance Co., 267 S.W.3d 20, 30 (Tex. 2008), is misplaced.
       Because our application of the eight-corners rule relied solely on the
policy and the petitions, we need not consider OSC’s objection to the use of
extrinsic evidence. See generally Ooida Risk, 579 F.3d at 475–76 (recognizing
exception to the general rule that extrinsic evidence cannot be used in
conjunction with the eight-corners rule).




       2  Although unpublished, this court cited and relied upon Global Sun Pools in Gore
Design, 538 F.3d at 369–70. In Texas, all opinions and memorandum opinions issued by the
state courts of appeals in civil cases after January 1, 2003 have precedential value. TEX. R.
APP. P. 47.7 cmt.; Mid-Continent Cas. Co. v. Bay Rock Operating Co., 614 F.3d 105, 110 n.3
(5th Cir. 2010).
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                                No. 16-20195
      c. The Anti-Stacking Rule
      In the insurance context, the term “stacking” refers to “taking policy
limits from multiple, but not overlapping, policies potentially covering the
same lawsuit and adding those limits together.” N. Am. Specialty Ins. Co. v.
Royal Surplus Lines Ins. Co., 541 F.3d 552, 556 (5th Cir. 2008). In American
Physicians Insurance Exchange v. Garcia, 876 S.W.2d 842 (Tex. 1994), the
Texas Supreme Court adopted an “anti-stacking rule” that prohibits an
insured from stacking the coverage limits of multiple, consecutive policies
when “a single claim involving indivisible injury” extends across several
distinct policy periods. Id. at 853–55. In those circumstances, “the insured’s
indemnity limit [is] whatever limit applied at the single point in time during
the coverage periods of the triggered policies when the insured’s limit was
highest.” Id. at 853–55.
      OSC argues that Garcia’s anti-stacking rule precludes LSB’s claims in
this case. Specifically, OSC asserts that another insurer, CNA, issued general
liability policies to Willis providing coverage from February 1, 2007 through
February 1, 2013. OSC characterizes the property damage underlying ADP’s
lawsuit as an indivisible injury that extended across the periods of coverage
provided by the OSC Policy and the policies issued by CNA. Moreover, OSC
asserts that LSB selected CNA to provide a “complete defense” against the
state court suit. From this, OSC concludes that allowing LSB to recover
defense costs from it would be permitting it to “stack” the OSC Policy and one
or more of the CNA policies.
      It is not clear that the Texas Supreme Court would extend Garcia, which
involved an insurer’s duty to indemnify, to the present situation, which




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                                       No. 16-20195
involves a claim based on an insurer’s duty to defend. 3 See D.R. Horton–Texas,
300 S.W.3d at 743 (“[T]he duty to defend and the duty to indemnify ‘are distinct
and separate duties.’” (quoting Utica Nat’l Ins. Co. v. Am. Indem. Co., 141
S.W.3d 198, 203 (Tex. 2004))). We need not decide that question, however,
because even assuming that the anti-stacking rule has some application in the
duty-to-defend context, there is no basis for applying it in this particular case.
OSC has not pointed to record evidence showing that LSB “selected” CNA for
defense purposes before OSC denied LSB’s first request for defense in October
2011. If LSB sought a defense from CNA only after OSC’s wrongful denial, then
applying the anti-stacking rule would reward OSC for shirking its legal duty.
Applied on a wider scale, such a rule would incentivize wrongful denials of
requests for defense and would shift defense costs onto insurers who undertake
their duty to defend in good faith. Nothing in Garcia supports such an
inequitable result.
       d. Conclusion
       Because there are no genuine issues of material fact and LSB is entitled
to judgment as a matter of law, we affirm the district court’s grant of summary
judgment in LSB’s favor on the duty to defend and OSC’s breach of that duty.
We also affirm the district court’s denial of OSC’s motion for partial summary
judgment based on the anti-stacking rule.



       3 Indeed, the only case OSC cites that applied anti-stacking principles to the duty to
defend involved a policy that subjected the duty to defend to an eroding coverage provision.
N. Am. Specialty Ins. Co. v. Royal Surplus Lines Ins. Co., 541 F.3d 552, 559–60 (5th Cir. 2008)
(explaining impact of policy language that subjects duty to defend to eroding policy limits).
The OSC Policy does not contain such a provision, and in cases like this, Texas courts have
rejected the argument that the anti-stacking rule overcomes “the notion that each of several
insurers on concurrently triggered policies is obligated to provide a full defense to the
insured.” Tex. Prop. & Cas. Ins. Guar. Ass’n/Sw. Aggregates, Inc. v. Sw. Aggregates, Inc., 982
S.W.2d 600, 606–07 (Tex. App.—Austin 1998, no pet.); see also Md. Cas. Co. v. S. Tex. Med.
Clinics, P.A., No. 13-06-89-CV, 2008 WL 98375, at *8 (Tex. App.—Corpus Christi Jan. 10,
2008, pet. denied).
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                                No. 16-20195
   2. OSC’s Liability under the Prompt Payment of Claims Act
      Under the PPCA, an insurer that is “liable for a claim under an
insurance policy” and fails to promptly respond to, or pay, the claim in
accordance with the statute becomes liable to the policy holder or beneficiary
for the amount of the claim, as well as an 18 percent per annum statutory
penalty and reasonable attorney’s fees. TEX. INS. CODE §§ 542.051–.061. To
recover under the PPCA, an insured must establish that: “(1) a claim was made
under an insurance policy, (2) the insurer is liable for the claim, and (3) the
insurer failed to follow one or more sections of the prompt-payment statute
with respect to the claim.” United Nat. Ins. Co. v. AMJ Investments, LLC, 447
S.W.3d 1, 13 (Tex. App.—Houston [14th Dist.] 2014, pet. dism’d) (citing
Allstate Ins. Co. v. Bonner, 51 S.W.3d 289, 291 (Tex. 2001)). Defense costs
incurred by an insured as a result of an insurer’s breach of its duty to defend
are a “claim” within the meaning of the PPCA. Lamar Homes, Inc. v. Mid-
Continent Cas. Co., 242 S.W.3d 1, 20 (Tex. 2007).
      The sole basis for OSC’s challenge to the district court’s grant of
summary judgment in favor of LSB under the PPCA is its assertion that LSB
failed to establish that OSC either had a duty to defend LSB or that OSC
breached that duty. Having just rejected those assertions, we affirm. See
Admiral Ins. Co. v. Petron Energy, Inc., 1 F. Supp. 3d 501, 5010 (N.D. Tex.
2014) (“Because Plaintiff had a duty to defend, and breached that duty, the
Court necessarily concludes that Plaintiff violated the Prompt Payment of
Claims Act by erroneously rejecting Defendants’ requests for defense and
delaying payment of fees and expenses incurred in the Oklahoma Litigation.”).
B. LSB’s Cross-Appeal
      LSB seeks reversal of the district court’s ruling denying its claim for
extra-contractual damages under Chapter 541 of the Texas Insurance Code.
On appeal from a decision rendered after a bench trial, a district court’s
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                                  No. 16-20195
findings of fact are reviewed for clear error, while its conclusions of law and
rulings on mixed questions of law and fact are reviewed de novo. Dickerson v.
Lexington Ins. Co., 556 F.3d 290, 294 (5th Cir. 2009).
      Chapter 541 prohibits insurers from engaging in various “unfair
methods of competition” and “unfair or deceptive acts or practices.” TEX. INS.
CODE §§ 541.051–.061. A person “who sustains actual damages . . . caused by”
such conduct may recover “the amount of actual damages, plus court costs and
reasonable and necessary attorney’s fees,” with treble damages available if the
insurer is found to have committed the prohibited acts “knowingly.” Id.
§§ 541.151–.152; Texas Mut. Ins. Co. v. Ruttiger, 381 S.W.3d 430, 441 (Tex.
2012). Under the Insurance Code, “actual damages” are “‘those damages
recoverable at common law’” that “the insured sustains ‘as a result of’ the
statutory violation.” USAA Texas Lloyds Co. v. Menchaca, 545 S.W.3d 479,
489, 492 (Tex. 2018) (quoting State Farm Life Ins. Co. v. Beaston, 907 S.W.2d
430, 435 (Tex. 1995), and Kish v. Van Note, 692 S.W.2d 463, 466 (Tex. 1985));
accord Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 816–17
(Tex. 1997) (“actual damages” include both “direct” and “consequential”
damages). Since damages for Insurance Code violations are a creature of
statute, not the insurance policy, they are “extra-contractual” in nature. See
Menchaca, 545 S.W.3d at 489 (“An insured’s claim for breach of an insurance
contract is ‘distinct’ and ‘independent’ from claims that the insurer violated its
extra-contractual common-law and statutory duties. . . . A claim for breach of
the policy is a ‘contract cause of action,’ while a common-law or statutory bad-
faith claim ‘is a cause of action that sounds in tort.’” (citations omitted)).
      LSB claimed that OSC violated the Insurance Code by knowingly
misrepresenting the OSC Policy’s coverage so as to avoid defending LSB in the
state-court suit, and that this violation caused LSB to incur defense costs as
extra-contractual damages. See TEX. INS. CODE §§ 541.060(a)(1), 541.061. After
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                                  No. 16-20195
holding the bench trial, the district court found that LSB had “adduced no
evidence that it suffered injury separate and apart from the denial of benefits
it was owed under the OSC Policy.” Concluding that this circuit’s caselaw
required LSB to establish such an independent injury in order to obtain extra-
contractual damages under the Insurance Code, the district court rendered
judgment for OSC on the claim.
      In Vail v. Texas Farm Bureau Mutual Insurance Co., 754 S.W.2d 129
(Tex. 1988), the Texas Supreme Court held that when an insurer improperly
withholds policy benefits, an insured can recover, “at minimum,” the amount
of the wrongly denied benefits as actual damages under the Insurance Code.
Id. at 136. The insured need not show any injury independent from the denied
benefits in order to obtain such extra-contractual damages. Id. Following Vail,
the Texas high court decided two cases in which it rejected efforts by insureds
to recover policy benefits as extra-contractual damages where coverage under
the policies had not been established. Republic Ins. Co. v. Stoker, 903 S.W.2d
338, 341 (Tex. 1995) (“As a general rule there can be no claim for bad faith
when an insurer has promptly denied a claim that is in fact not covered.”);
Provident Am. Ins. Co. v. Castañeda, 988 S.W.2d 189, 196 (Tex. 1998) (rejecting
insured’s claims for extra-contractual damages and expressing no opinion on
the issue of coverage).
      In Parkans International LLC v. Zurich Insurance Co., 299 F.3d 514 (5th
Cir. 2002), this circuit, citing Castañeda, stated that “[t]here can be no recovery
for extra-contractual damages for mishandling claims unless the complained
of actions or omissions caused injury independent of those that would have
resulted from a wrongful denial of policy benefits.” Id. at 519. Parkans involved
an insured whose claims were not covered by the insurance policy. Id. at 517–
18. Then, in Great American Insurance Co. v. AFS/IBEX Financial Services,
Inc., 612 F.3d 800 (5th Cir. 2010), this court, relying on Parkans, expressly
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                                  No. 16-20195
rejected an insured’s argument that it was not required to “prove a separate
injury in order to maintain its extra-contractual claims” because an “insurer’s
denial of insurance proceeds, standing alone, entitled it to recover on its extra-
contractual claims.” Id. at 808 n.1. Unlike Parkans, Castañeda, and Stoker, the
insured in Great American had established coverage under the insurance
policy. Id. at 806. Great American thus established “the opposite rule from that
[set forth] in Vail.” In re Deepwater Horizon, 807 F.3d 689, 698 (5th Cir. 2015).
Meanwhile, several Texas intermediate appellate courts continued to adhere
to Vail. See id.
      At the time of the district court’s ruling, the Texas Supreme Court had
not spoken on the independent injury requirement for extra-contractual claims
since Great American. Consequently, the district court, while expressing
reservations about the confused state of the law in this area, followed Great
American as binding precedent.
      During the course of this appeal, the Texas Supreme Court issued an
opinion in USAA Texas Lloyds Co. v. Menchaca. In Menchaca, the court
“distill[ed] from [its previous] decisions five distinct but interrelated rules that
govern the relationship between contractual and extra-contractual claims in
the insurance context.” 545 S.W.3d at 489. Two of those rules are directly
relevant to this case: the “entitled-to-benefits rule” and the “independent-
injury rule.”
      The “entitled-to-benefits” rule provides that “an insured who establishes
a right to receive benefits under an insurance policy can recover those benefits
as ‘actual damages’ under the [Insurance Code] if the insurer’s statutory
violation causes the loss of the benefits.” Id. at 495. Acknowledging that this
rule “is what [was] recognized in Vail,” the court clarified that it “did not reject
the Vail rule in Stoker or in Castañeda.” Id. at 496. On the contrary, it
explained:
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                                  No. 16-20195
      Stoker and Castañeda stand for the general rule that an insured
      cannot recover policy benefits as damages for an insurer’s extra-
      contractual violation if the policy does not provide the insured a
      right to those benefits. Vail announced a corollary rule: an insured
      who establishes a right to benefits under the policy can recover
      those benefits as actual damages resulting from a statutory
      violation.

Id. at 497.
      By reaffirming Vail, Menchaca compels reexamination of significant
aspects of Great American’s reasoning. Yet despite the Texas Supreme Court
expressly stating that our court was wrong to conclude that Vail had been
overruled, id. at 495–96, OSC urges us to maintain our position based on the
“independent-injury rule.” Menchaca explained that “[t]here are two aspects to
th[e] independent-injury rule.” Id. at 499.
      The first is that, if an insurer’s statutory violation causes an injury
      independent of the insured’s right to recover policy benefits, the
      insured may recover damages for that injury even if the policy does
      not entitle the insured to receive benefits. . . . The second aspect of
      the independent-injury rule is that an insurer’s statutory violation
      does not permit the insured to recover any damages beyond policy
      benefits unless the violation causes an injury that is independent
      from the loss of the benefits.

Id. at 499–500.
      As the phrase “beyond policy benefits” suggests, the independent-injury
rule does not restrict the damages an insured can recover under the entitled-
to-benefits rule. Rather, the independent-injury rule limits the recovery of
other damages that “flow” or “stem” from a mere denial of policy benefits. Id.
at 500 (“When an insured seeks to recover damages that ‘are predicated on,’
‘flow from,’ or ‘stem from’ policy benefits, the general rule applies and precludes
recovery unless the policy entitles the insured to those benefits.”). For example,
an insured cannot recover damages for emotional distress caused by a mere

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                                      No. 16-20195
denial of policy benefits because (1) the entitled-to-benefits rule does not
provide for the recovery of such damages, and (2) the second aspect of the
independent-injury rule precludes such recovery. 4
       As previously mentioned, the Insurance Code provides for the trebling of
“actual damages” if the insurer “knowingly committed the act complained of.”
TEX. INS. CODE § 541.152(b) (“[O]n a finding by the trier of fact that the
defendant knowingly committed the act complained of, the trier of fact may
award an amount not to exceed three times the amount of actual damages.”).
Because the entitled-to-benefits rule allows an insured to recover policy
benefits “as ‘actual damages’ under the statute,” Menchaca, 545 S.W.3d at 495,
an insured may recover treble the amount of policy benefits received as “actual
damages” pursuant to § 541.152. In its discussion of the entitled-to-benefits
rule, the Menchaca court observed that the insureds in Vail were awarded “the
amount of the ‘full policy limit’ plus treble that amount, attorney’s fees, and
prejudgment interest.” Id. at 495 (emphasis added) (citing Vail, 754 S.W2d at
131). Menchaca’s strong reaffirmation of Vail confirms that an award of trebled
policy benefits pursuant to § 541.152(b) does not run afoul of the independent-
injury rule’s limitation on the recovery of “damages beyond policy benefits.”




       4    However, an insured can recover actual damages for emotional distress if those
damages are “caused by” the insurer’s Insurance Code violation and “are separate from
and . . . differ from benefits under the [policy].” Menchaca, 545 S.W.3d at 499 (quoting Twin
City Fire Ins. Co. v. Davis, 904 S.W.2d 663, 666 (Tex. 1995), and citing Twin City as having
“identif[ied] mental anguish damages as an example” of damages that could be recovered
under the first aspect of the independent-injury rule).
         In the recent Texas cases OSC relies upon, the courts applied the independent-injury
rule to bar the recovery of extra-contractual damages where there was no proof of damages
independent of the policy benefits. See State Farm Lloyds v. Webb, No. 9-15-408-CV, 2017
WL 1739763, at *9 (Tex. App.—Beaumont May 4, 2017, no pet.) (mem. op.); Nat’l Sec. Fire &
Cas. Co. v. Hurst, 523 S.W.3d 840, 848–49 (Tex. App.—Houston [14th Dist.] May 23, 2017,
no pet.).

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                                      No. 16-20195
       In this case, LSB was entitled to a defense from OSC as a benefit of the
OSC        Policy.   Consequently,    if   LSB     establishes     that     OSC’s    alleged
misrepresentations caused it to be deprived of that benefit, LSB can recover
the resulting defense costs it incurred as actual damages under Chapter 541—
without limitation from the independent-injury rule. Furthermore, if LSB
proves that OSC committed the statutory violation “knowingly,” it may recover
treble that amount.
       Accordingly, we reverse the district court’s judgment with respect to
LSB’s Chapter 541 claim and remand for further proceedings in light of this
opinion and Menchaca.
C. OSC’s Appeal of the Damages Rulings
       OSC       challenges   two    aspects      of   the   district     court’s   damages
determinations.
   1. Defense Costs
       OSC argues that LSB is not entitled to the vast majority of the
$655,600.27 it received as damages for OSC’s breach of its duty to defend. 5 The
propriety of awarding these damages is a question of law subject to de novo
review, while the actual calculation of damages is an issue of fact reviewed for
clear error. Ergon-W. Virginia, Inc. v. Dynegy Mktg. & Trade, 706 F.3d 419,
424 (5th Cir. 2013); Munn v. Algee, 924 F.2d 568, 575 (5th Cir. 1991).
       Of the $655,600.27 in defense costs awarded to LSB, $500,000 is
attributable to a deductible that LSB paid to another insurer. The record
supports LSB’s claim that this payment was maintained in an escrow account
and was used to pay for defense fees and costs incurred in the state court suit.



       5OSC does not challenge the $1,537.50 awarded to LSB for fees paid to a mediator.
OSC also argues that LSB is not entitled to $93,013.77 in damages that the district court did
not award. Since LSB does not seek those damages in its cross-appeal, we do not address that
argument.
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                                  No. 16-20195
“Texas law recognizes that attorneys’ fees and expenses incurred by an insured
in an underlying lawsuit are damages produced by the insurer’s breach of its
duty to defend.” Evanston Ins. Co. v. Legacy of Life, Inc., 645 F.3d 739, 750 (5th
Cir. 2011) (citing U.S. Cas. Co. v. Schlein, 338 F.2d 169, 175 (5th Cir. 1964)).
Accordingly, we uphold this portion of the district court’s award.
      The district court also awarded $131,992.67 to LSB for unreimbursed
defense fees it spent on an independent counsel and $22,070.10 for webhosting
costs incurred by the independent counsel. OSC asserts that these
expenditures were unnecessary, in part because LSB had other paid counsel
available. “It is well settled that once an insurer has breached its duty to
defend, the insured is free to proceed as he sees fit; he may engage his own
counsel and either settle or litigate, at his option.” Rhodes v. Chicago Ins. Co.,
a Div. of Interstate Nat. Corp., 719 F.2d 116, 120 (5th Cir. 1983) (citation
omitted); accord Primrose Operating Co., 382 F.3d at 559 (“A breach of the duty
to defend entitles the insured to the expenses it incurred in defending the suit,
including reasonable attorney’s fees and court costs.”); cf. Graper v. Mid-
Continent Cas. Co., 756 F.3d 388, 393–94 (5th Cir. 2014) (insurer that properly
fulfilled its duty to defend could refuse to pay defense fees incurred by insured’s
independent counsel that the insurer did not approve, when there was no
disqualifying conflict of interest). Since OSC breached its duty to defend, it is
in no position to object to defense-related expenditures that are supported by
the record and that are not patently unreasonable.
      Because there is no basis for finding that the district court erred in
awarding these damages, we affirm.
   2. The PPCA Statutory Penalty
      As mentioned above, an insurer that fails to comply with the PPCA’s
requirements is liable for “the amount of the claim” itself, as well as “interest
on the amount of the claim at the rate of 18 percent a year as damages, together
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                                       No. 16-20195
with reasonable attorney’s fees.” TEX. INS. CODE § 542.060(a). 6 Having
determined that OSC was liable under the PPCA, the district court, in its final
judgment, ordered OSC to pay the 18 percent statutory penalty “until the date
of payment of this judgment.” OSC moved to amend the judgment under
Federal Rule of Civil Procedure 59(e), arguing that the penalty should only
accrue until the date of judgment, rather than the date the judgment is paid.
The district court denied that motion. “We generally review a decision on a
motion to alter or amend judgment for abuse of discretion, although to the
extent that it involves a reconsideration of a question of law, the standard of
review is de novo.” In re Deepwater Horizon, 824 F.3d 571, 577 (5th Cir. 2016)
(per curiam) (citing Ross v. Marshall, 426 F.3d 745, 763 (5th Cir. 2005)).
       The PPCA itself does not expressly state when the 18 percent penalty
stops accruing, but this court has held that it “only accrues until the date
judgment is rendered in the trial court.” Great Am. Ins. Co. v. AFS/IBEX Fin.
Servs., Inc., 612 F.3d 800, 809 (5th Cir. 2010) (citing Republic Underwriters
Ins. Co. v. Mex-Tex, Inc., 150 S.W.3d 423, 427–28 (Tex. 2004)). Compelling
reasons support the approach taken by the district court; 7 however, under this


       6 The provision was amended effective September 1, 2017. This opinion references the
version in effect at the time of the district court’s judgment. The amended version does not
appear to be materially different from the previous version insofar as this appeal is
concerned.

       7 The court in Great American did not examine the PPCA in any detail—it simply
relied on language in Mex-Tex. The court in Mex-Tex, in turn, does not appear to have even
considered the issue of when the penalty’s accrual period ends; its passing statement that
the insured was entitled to the statutory penalty “to the date of judgment” seems to have
been a reference to an uncontested aspect of the trial court’s judgment. See Mex-Tex, 150
S.W.3d at 425, 427. By contrast, a provision of the PPCA mandates that the statute “be
liberally construed to promote the prompt payment of insurance claims.” TEX. INS. CODE
§ 542.054 (emphasis added). Allowing the penalty to accrue until the date the claim (or
judgment) is actually paid, rather than pretermitting it on the date of judgment, accords more
fully with that purpose. See Mark L. Kincaid et al., Annual Survey of Texas Insurance Law,
19 J. CONSUMER & COM. L. 91, 97–98 (2016) (“There is no rational basis nor any basis in the
language of the statute for stopping the penalty on the date of judgment, when the violation
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                                       No. 16-20195
court’s rule of orderliness, “one panel may not overrule the decision, right or
wrong, of a prior panel,” absent an intervening change in state law. Soc’y of
Separationists, Inc. v. Herman, 939 F.2d 1207, 1211 (5th Cir. 1991); Batts v.
Tow-Motor Forklift Co., 66 F.3d 743, 747 (5th Cir. 1995). LSB does not identify
any such change in Texas law, nor does it propose “a principled basis to
distinguish” Great American. See Canal Indem. Co. v. Galindo, 344 F. App’x
909, 911 (5th Cir. 2009). 8 Great American’s interpretation of the PPCA is
binding on this panel, so we reverse the district court’s judgment to the extent
it imposed the 18 percent statutory penalty after the “date of judgment.”
       Because the PPCA is a Texas statute, the “date judgment was rendered
in the trial court” must be assessed in light of Texas law. See Acker v. Texas
Water Comm’n, 790 S.W.2d 299, 301 (Tex. 1990) (“A statute is presumed to
have been enacted by the legislature with complete knowledge of the existing
law and with reference to it.”). Texas generally recognizes that “only one final
judgment shall be rendered in any cause except where it is otherwise specially
provided by law.” TEX. R. CIV. P. 301. With respect to LSB’s claims for breach
of the duty to defend and for violation of the PPCA, that date is February 23,
2016, the day the district court entered the amended final judgment. See, e.g.,



is a failure to pay. The insured remains unpaid on the date of judgment. The insurer has been
penalized during the time it may have been challenging the claim in good faith. Why does it
make sense to stop the penalty once the insurer’s liability is recognized by a judgment? It
doesn’t.”).

       8  The district court cited Nautilus Insurance Co. v. International House of Pancakes,
Inc., 4:03-CV-2182, 2009 WL 5061767 (S.D. Tex. Dec. 15, 2009), which assessed the statutory
penalty based on each day that the insured’s “defense costs remain unpaid.” Id. at *5. Like
this case, Nautilus involved an insurer’s breach of the duty to defend. Id. at *1. By contrast,
Great American and Mex-Tex involved the duty to indemnify. In the present case, however,
the underlying suit ended prior to the entry of judgment in the coverage action, and the
insured had already incurred all its defense costs prior to judgment. In these circumstances—
that is, where the insured will not incur new defense costs post-judgment—there is no obvious
basis for distinguishing between defense costs and claims for indemnity, insofar as the end
date for accrual of the PPCA’s statutory penalty is concerned.
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                                  No. 16-20195
City of W. Lake Hills v. State ex rel. City of Austin, 466 S.W.2d 722, 727 (Tex.
1971) (a “corrected final judgment” replaces an earlier judgment).
      But when a judgment is partially reversed on appeal, the trial court’s
judgment becomes a nullity as to those claims on which the reversal is based.
See Bramlett v. Phillips, 359 S.W.3d 304, 310 (Tex. App.—Amarillo 2012)
(collecting cases), aff’d, 407 S.W.3d 229 (Tex. 2013). Due to our reversal of the
district court’s judgment with respect to LSB’s Chapter 541 claim, no judgment
has yet been rendered on that claim. Consequently, if, on remand, LSB prevails
on its Chapter 541 claim and elects to recover its defense costs as actual
damages under the Insurance Code, rather than as breach-of-contract
damages, it will be entitled to the 18 percent penalty applied to the amount of
those damages through the date of the new judgment. See TEX. INS. CODE
§ 542.061 (providing that the PPCA’s remedies “are in addition to any other
remedy or procedure by law or at common law”); Menchaca, 545 S.W.3d at 495
(“Because the Insurance Code provides that the statutory remedies are
cumulative of other remedies, we concluded [in Vail] that the insureds could
elect to recover the benefits under the statute even though they also could have
asserted a breach-of-contract claim.”). Such recovery would be entirely
consistent with the PPCA’s statutory purpose and would not impermissibly
penalize OSC. See Higginbotham v. State Farm Mut. Auto. Ins. Co., 103 F.3d
456, 461 (5th Cir. 1997) (“State Farm took a risk when it chose to reject
Higginbotham’s claim. State Farm lost when it was found liable for breach of
contract. Therefore, it must pay this 18 percent per annum interest and
reasonable attorneys’ fees.”); Nautilus Ins. Co. v. Int’l House of Pancakes, Inc.,
622 F. Supp. 2d 470, 480–82 (S.D. Tex. 2009) (rejecting due process challenge
to PPCA); cf. Pennington v. Singleton, 606 S.W.2d 682, 690–91 (Tex. 1980)
(treble damage provision of Texas Deceptive Trade Practices Act fell within the
“wide latitude of discretion” given to states under the Due Process Clause).
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                                No. 16-20195
                            III. CONCLUSION
      For the reasons given above, we AFFIRM the district court’s judgment
in part and REVERSE in part. This case is REMANDED for further
proceedings consistent with this opinion.




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