                                 REVISED OCTOBER 26, 2001
                              United States Court of Appeals
                                   For the Fifth Circuit
                       __________________________________________

                                       No. 00-10517
                                    con w/ 00-10883
                       _________________________________________

                                Harken Exploration Company,
                                Plaintiff-Counter Defendant-Appellee,


                                                 v.


     Sphere Drake Insurance PLC, also known as Odyssey Re (London) Limited,
                           Defendant-Counter Claimant-Appellant,

                        Commercial Underwriters Insurance Company,
                                   Defendant-Appellant.

                       __________________________________________

                         Appeals from the United States District Court
                               for the Northern District of Texas
                       __________________________________________
                                        August 16, 2001

Before REYNALDO G. GARZA, HIGGINBOTHAM, and SMITH, Circuit Judges.

REYNALDO G. GARZA, Circuit Judge:

       Sphere Drake Insurance PLC (hereinafter “Sphere”) and Commercial Underwriters

Insurance Company (hereinafter “Commercial”) (collectively hereinafter “Appellants”) appeal the

Dallas Federal District Court’s ruling that they had a duty to defend Harken Exploration

Company (hereinafter “Harken”) in Harken’s underlying federal and state lawsuits, the award of

Harken's defense costs for the underlying lawsuits, and the use of a 10% interest rate to calculate



                                                 1
prejudgment interest. For the reasons stated below, we Affirm.

1.     Factual and Procedural Background.

       Harken is an oil and gas exploration and production company. On December 15, 1995,

Harken purchased an oil and gas lease (hereinafter “Lease”) that covered Big Creek Ranch

(hereinafter “Ranch”) from Momentum Operating Company, Inc. Thereafter, Harken commenced

oil and gas operations on the Ranch. The Rice Family Living Trust (hereinafter “Trust”) owns the

Ranch. D.E. Rice and Karen Rice (hereinafter “Rices”) are the Trust's trustees.

       On October 24, 1997, the Rices, on behalf of the Trust, sued Harken in Amarillo Federal

District Court (hereinafter "Amarillo Court") alleging that Harken polluted the Ranch (hereinafter

“Federal Lawsuit”). The Rices asserted causes of action for violation of the Oil Pollution Act,1

breach of the Lease, breach of the pipeline easement, negligence, including negligent discharge of

saltwater, negligence per se, nuisance, trespass, and equitable relief.

       Harken notified the Appellants of the claims filed against it and asked the Appellants to

defend it in the Federal Lawsuit. Harken carried two separate, successive commercial general

liability policies; one issued by each of Appellants. The policy Sphere issued insured Harken from

October 1, 1995 through October 1, 1996 (hereinafter “Sphere Policy”). The policy Commercial

issued insured Harken from October 1, 1996 through October 1, 1997 (hereinafter “Commercial

Policy”) (collectively hereinafter “Policies”). The Appellants denied Harken’s request and refused

to defend it in the Federal Lawsuit.

       Harken filed a declaratory judgment action in state court to determine whether the

Appellants had a duty to defend it in the Federal Lawsuit. The Appellants removed this action to


       1
        33 U.S.C. §§ 2701-2720.

                                                  2
the Dallas Federal District Court (hereinafter "Dallas Court") based on diversity. The three

parties, Harken, Sphere, and Commercial, each filed motions for partial summary judgment.

Before the Dallas Court ruled on the motions for summary judgment, the Amarillo Court

dismissed the Rices’ Oil Pollution Act claims and the remaining supplemental state law claims for

want of jurisdiction.2 In response to the dismissal, the Rices sued Harken in state court asserting

the same causes of action, minus the Oil Pollution Act claim (hereinafter “State Lawsuit”).

Harken notified the Appellants of the State Lawsuit and asked them to defend it in that lawsuit.

The Appellants refused. On February 10, 2000, the Dallas Court granted partial summary

judgment in favor of Harken.

       At this point, Harken had not expressly amended its pleading or its motion for summary

judgment to include the State Lawsuit. In its motion for entry of judgment, Harken presented the

Dallas Court with the State Lawsuit's original petition and asked the court to enter a judgment

that the Appellants had a duty to defend it in both the Federal Lawsuit and the State Lawsuit

(collectively hereinafter “Lawsuits”). The Appellants responded and presented evidence in

opposition. On April 14, 2000, the Dallas Court entered its final judgment. The Dallas Court

decided that the Appellants had a duty to defend Harken in the Lawsuits and that by failing to do

so breached the Policies. The Dallas Court awarded Harken its defense costs in the Lawsuits

(attorneys' fees and court costs), prejudgment interest at 10%, and later, attorneys' fees and

expenses in this case.

2.     Discussion.



       2
        The Rices appealed the dismissal of the Federal Lawsuit to this Court, and we affirmed.
D.E. Rice v. Harken Exploration Co., 250 F.3d 264 (5th Cir. 2001).

                                                 3
       The Appellants appeal the Dallas Court's grant of partial summary judgment in favor of

Harken. They contend that they do not owe Harken a duty to defend because: 1) there was not

an “occurrence” as defined by the Policies; 2) the Saline Clause only obligates the Appellants to

indemnify Harken, not defend it; and 3) the property damage alleged did not occur during the

Policies’ periods. The Appellants, further, contend that the Dallas Court erred when it awarded

Harken the Lawsuits' defense costs and used a 10% interest rate to calculate prejudgment interest.

       2.1     The Appellants have a duty to defend Harken.

       We review a federal district court's grant of summary judgment de novo, applying the

same standard of review as would the district court. Merritt-Campbell, Inc. v. RxP Products,

Inc., 164 F.3d 957, 961 (5th Cir. 1999). Summary judgment is only proper when there is not a

genuine issue as to any material fact and the movant is entitled to judgment as a matter of law. Id.

We view the evidence in the light most favorable to the non-movant and make all reasonable

inferences in her favor. Merritt-Campbell, Inc, 164 F.3d at 961; Matsushita Electric Industrial

Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587-588 (1986). A fact is material if it might

affect the outcome of the suit under the governing law. Merritt-Campbell, Inc, 164 F.3d at 961;

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

There is a genuine issue as to a material fact if the evidence is such that a reasonable jury could

return a verdict for the non-movant. Merritt-Campbell, 164 F.3d at 961.

       The Appellants contend that the Dallas Court erred when it held that the Appellants have a

duty to defend Harken. Under Texas Law, an insurer’s duty to defend is usually determined




                                                  4
solely from the allegations in the most recent petition and the language of the insurance policy.3

Nat’l Union fire Ins. Co. of Pittsburgh, Pa. v. Merch. Fast Motor Lines, Inc., 939 S.W.2d 139,

141 (Tex. 1997). The insured bears the initial burden of showing that the claim against her is

potentially within the insurance policy's scope of coverage. Employers Casualty Co. v. Block,

744 S.W.2d 940, 945 (Tex. 1988). If the insurer relies on the policy's exclusions to deny

coverage, the burden shifts to the insurer to prove the exclusion applies. Federated Mut. Ins. Co.,

197 F.3d at 723, citing Guaranty Nat'l Ins. Co. v. Vic. Mfg. Co., 143 F.3d 192, 193 (5th Cir.

1998), citing Telepak v. United Services Auto Ass'n., 887 S.W.2d 506, 507 (Tex.App.–San

Antonio 1994, writ denied). If the insurer is successful, the burden shifts back to the insured to

show that an exception to the exclusion brings the claim against her potentially within the scope

of coverage under the insurance policy. Federated Mut. Ins. Co., 197 F.3d at 723, citing

Guaranty Nat'l Ins. Co., 143 F.3d at 193, citing Telepak, 887 S.W.2d at 507.

            “The general rule is that the insurer is obligated to defend [its insured] if there is,

potentially, a case under the complaint within the coverage of the policy." Merch. Fast Motor

Lines, Inc., 939 S.W.2d at 141. If there is a "doubt as to whether or not the [factual] allegations



        3
         Insurance policies are contracts. Amica Mut. Ins. Co. v. Moak, 55 F.3d 1093, 1095 (5th
Cir. 1995). In diversity cases such as this one, we apply state law rules of construction. Id.
Therefore, Texas’s rules of contract interpretation control. See Hamilton v. Segue Software Inc.,
232 F.3d 473, 477 (5th Cir. 2000); Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L.
Ed. 1188 (1938). We are bound to apply the law as interpreted by the state’s highest court, in
this case, the Texas Supreme Court. See Barfield v. Madison County, Miss., 212 F.3d 269, 271-
72 (5th Cir. 2000). If the state’s highest court has not definitively ruled on a particular issue, it is
our duty to predict how that court would decide the issue. Barfield, 212 F.3d at 272; Matheny v.
Glen Falls Ins. Co., 152 F.3d 348, 353-54 (5th Cir. 1998). Intermediate state courts of appeals’
decisions can be persuasive, but are not controlling. Barfield, 212 F.3d at 272; Matheny, 152
F.3d at 354. And we must not “expand state law beyond its presently existing boundaries.”
Barfield, 212 F.3d at 272 (internal citations omitted).

                                                      5
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.” Id.

       2.11    The Rices alleged an "occurrence."

       The Parties agree that initially under the Policies the Appellants have a duty to defend

Harken against a suit alleging damages caused by an occurrence. The first step in determining

whether the Appellants have a duty to defend Harken against the Lawsuit is to determine whether

the Rices alleged an occurrence.

       The Policies define occurrence as "an accident, including continuous or repeated exposure

to conditions, which results in bodily injury or property damage neither expected nor intended

from the standpoint of the insured.” The Policies, however, do not define accident. Thus, we

must give accident its plain, ordinary, and generally accepted meaning. See Western Reserve Life

Ins. V. Meadows, 261 S.W.2d 554, 557 (Tex. 1953) ("[i]t is well-settled law in this state that

contracts of insurance in their construction are governed by the same rules as other contracts, and

that terms used in them are to be given their plain, ordinary, and generally accepted meaning

unless the instrument itself shows the them to have been used in a technical or different sense.")

(giving "war" its plain, ordinary, and generally accepted meaning); Gonzalez, 795 S.W.2d at 736

(giving "bodily injury," "sickness," "disease," "death," and "including" their plain, ordinary, and

generally accepted meaning).

       The Texas Supreme Court has not articulated a hard and fast rule for when an accident

occurs. See Mid-Century Ins. Co. of Texas v. Lindsey, 997 S.W.2d 153, 155 (Tex. 1999)("[a]n

injury caused by voluntary and intentional conduct is not an accident just because the result or


                                                  6
injury may have been unexpected, unforeseen, and unintended . . . [although,] the mere fact that

an actor intended to engage in the conduct that gave rise to the injury does not mean that the

injury was not accidental."). It is reasonably clear that an accident has two elements: 1) an action

and 2) that action's effect–that is, the resulting damage. See id. There are also two factors that

influence both elements: a) an intent or design factor and b) an expectability or foreseeability

factor.4 See id.

       The Texas Supreme Court has told us that there is not an accident when the action is

intentionally taken and performed in such a manner that it is an intentional tort, regardless of

whether the effect was unintended or unexpected. See Argonaut Southwest Ins. Co. v. Maupin,

500 S.W.2d 633, 635 (Tex. 1973) (finding that there was not an "accident" when the action was a

trespass, the removal of soil from the wrong piece of real property, and the effect was the

unintended and unexpected resulting hole in the wrong piece of real property); Federated Mut.

Ins. Co., v. Grapevine Excavation Inc., 197 F.3d 720, 723-24 (5th Cir. 1999) (discussing

Maupin). We also know, however, that there is an accident when the action is intentionally taken,

but is performed negligently, and the effect is not what would have been intended or expected had

the action been performed non-negligently. See Trinity Universal Ins. Co. v. Cowen, 945 S.W.2d

819, 828 (Tex. 1997) ("accident includes the negligent acts of the insured causing damage which

is undesigned and unexpected."); Massachusetts Bonding & Ins. Co. v. Orkin Exterminating Co.,

416 S.W.2d 396, 400 (Tex. 1967) (finding there was an accident when the action, the deliberate

fumigation of a rice mill was performed negligently, and the effect was neither the intended nor

the expected result had the fumigation been performed non-negligently); Federated Mut. Ins. Co.,


       4
        Hereinafter intent includes design and expectability includes foreseeability.

                                                  7
197 F.3d at 726 (finding there was an accident when the action, the deliberate instillation of

parking lot fill material was performed negligently, and the effect was neither the intended nor the

expected result had the instillation been performed non-negligently). In other words, if the act is

deliberately taken, performed negligently, and the effect is not the intended or expected result had

the deliberate act been performed non-negligently, there is an accident.

        The Rices allege: 1) that Harken operated an oil facility on the Ranch; 2) that various

lines, tanks, and wells have ruptured, leaked, and overflowed releasing pollutants, including saline

substances, and continue to do so; 3) that the pollutants contaminated the Ranch's water, killed

their cattle, destroyed vegetation, and generally damaged the Ranch and continue to do so; 4) that

Harken negligently, carelessly, and wrongfully polluted the Ranch when it knew or should have

known that such actions would cause damage; and 5) that Harken acted and is acting maliciously

with subjective and actual awareness that its actions would cause property damage.5 Applying the


        5
         The Federal Lawsuit's complaint, which is virtually identical to the State Lawsuit's
petition states in pertinent part:

Pursuant to oil and gas leases, Harken operates an onshore oil facility on the Trust's land. Harken's
facility consists of about 16 wells, storage tanks, tank batteries, pipelines, flowlines, saltwater lines,
and other production and operation equipment.

Flowlines connecting Harken’s wells and storage tanks ruptured and leaked on numerous occasions
and continue to rupture and leak, spilling oil, saltwater, and other pollutants onto the Trust’s land
surface water, and ground water. Saltwater lines connecting Harken's saltwater tanks and injection
wells ruptured and leaked many times and continue to rupture and leak, spilling saltwater and other
pollutants onto the Trust's land, surface water, and groundwater. Harken's storage tanks overflowed
and continue to overflow, spilling oil, saltwater, and other pollutants onto the Trust's land, surface
water, and groundwater. Harken's wells have leaked and continue to leak both on the surface (for
example stuffing-box leaks) and below the surface, contaminating the Trust's property, surface water,
and ground water . . . .

Harken's releases damaged and continue to damage the Trust's land, contaminated and continue to
contaminate navigable waters (including ground and surface water), killed cattle, and damaged and

                                                    8
Rices factual allegations to what the Texas Supreme Court has told us about accidents, we hold

that the Rices alleged an accident. The operation of the oil facilities is the action deliberately

taken, but alleged to have been performed negligently. The contaminated water, dead cattle. etc.,

caused by the pollutants, including saline substances, are the unintended and unexpected effects of

the non-negligent operation of an oil facility.

       The Appellants contend that the effect, the contaminated water, dead cattle, etc., is not

unexpected because the contaminated water, dead cattle, etc., are the natural and probable

consequences of operating an oil facility. We disagree. The Appellants offer no authority for the

proposition that contaminated water, dead cattle, destroyed vegetation, and generally damaged



continue to damage vegetation. Harken polluted and continues to pollute upgradient from the Trust's
land, and the runoff from the pollution had entered and continues to enter the Trust's land, damaging
the surface, contaminating navigable waters (including ground and surface water), killing cattle, and
destroying vegetation. Harken polluted and continues to pollute upgradient from the Trust's land,
and the runoff from the pollution has entered and continues to enter the Trust's land, posing a
substantial threat of discharge of oil, saltwater, and other pollutants into or upon navigable waters
. . . Through its operations, Harken has damaged the surface, contaminated the water, destroyed
vegetation, and killed cattle . . . .

Harken negligently and carelessly released and is negligently and carelessly releasing oil, saltwater,
and other pollutants onto the Trust's land when it knew or should have known that doing so would
damage the surface, contaminate the water, destroy the vegetation, and kill the cattle . . . .
Corporately . . . Harken . . . by [its] negligent[] and careless[] [actions] . . . knew or should have
known that . . .[its actions] would damage the surface, contaminate the water, destroy the vegetation
and kill cattle. . . .The pollutants, oil, and saltwater negligently and wrongfully discharged by Harken
physically entered the Trust's real property and severely damaged the surface, contaminated the water,
destroyed vegetation, and killed cattle . . . .

Malice: Corporately . . . Harken acted and is acting maliciously. Harken . . . had and has had actual,
subjective awareness of this risk but , nonetheless, proceeded and is proceeding with conscious
indifference to the rights and welfare of the Trust. Corporately . . . Harken, acted and is acting with
a flagrant disregard for the Trust's rights and with actual awareness that its wrongful conduct would
in reasonable probability, result in property damage. Therefore, the Trust may recover exemplary
damages from Harken . . . .

                                                   9
land are the natural and probable consequences of operating an oil facility non-negligently, nor

have we found any. The Appellants argue that the Rices should have expected the contaminated

water, dead cattle, etc., because the Rices alleged that the act of contaminating the water, killing

the cattle, etc., was continuing–that is, the negligent performance of the deliberate action was

continuing. We disagree. The Policies expressly state that property damage–for example,

contaminated water, dead cattle, etc., can be caused by the "continuous or repeated exposure to a

condition[.]" Moreover, according to the Texas Supreme Court we are supposed to focus on

whether the effect is intended or expected not whether the negligent performance is intended or

expected. See Cowen, 945 S.W.2d at 828; Orkin Exterminating Co., 416 S.W.2d at 400. Thus,

whether the Rices should have expected the negligent operation of the oil facility because it is

continuing is irrelevant, if the deliberate operation of the oil facility, the act, is performed

negligently and the effect, the resulting property damage, is not the intended or expected result of

operating an oil facility non-negligently.

        The Appellant, further, assert that the Rices failed to allege an occurrence because

Harken's conduct cannot, at the same time, be both negligent and malicious or negligent and

knowing. The Appellants argue that the factual allegations that charged malicious or knowing

actions in effect transformed the factual allegations that charge negligent actions into malicious or

knowing actions because the Rices did not plead malice or knowledge in the alternative. The fact

that the Rices plead negligent, malicious, and knowing actions does not in and of itself transform

the negligent actions into malicious or knowing actions, and there is nothing in the factual

allegations to suggest that Harken's performance was not negligent. "If an insurer has a duty to

defend any portion of a suit, the insurer must defend the entire suit." Green Tree Corp., 249 F.3d


                                                   10
at 395. Thus, the Appellants must defend Harken against the entire suit including causes of action

that would not alone trigger the duty to defend, regardless whether the complaint is pled in the

alternative or not because the Rices's factual allegations of negligence are sufficient to trigger the

duty to defend. See St. Paul Ins. Co. v. Texas Dept. of Transp., 999 S.W.2d 881, 884

(Tex.App.–Austin 1999, pet. denied) ("[a]lthough the plaintiffs also allege gross negligence and

intentional torts, this is not controlling because we must focus on the facts alleged, not the legal

theories pleaded . . . that coverage may not be available for some causes of action pleaded does

not relieve St. Paul of its duty to defend.").

        2.12    The Rices alleged that the release of the pollutants was sudden and
                accidental.

        The Parties agree that "Exclusion (F)" in the Policies narrows the Appellants' initial duty

to defend Harken against a suit alleging damages caused solely by the discharge, dispersal,

release, or escape of pollutants, which would include saline substances, to suits that allege that

such discharge, dispersal, release, or escape is sudden and accidental. Courts should construe

exclusions "more stringent[ly]” than the other parts of an insurance policy or the factual

allegations in the compliant. See Barnett v. Aetna Life Ins. Co., 723 S.W.2d 663, 666 (Tex.

1987) ("because this case involves an exception or limitation on Aetna's liability under the policy,

an even more stringent construction is required."). Additionally, Courts "must adopt the

construction of an exclusionary clause urged by the insured as long as that construction is not

itself unreasonable, even if the construction urged by the insurer appears to be more reasonable or

a more accurate reflection of the parties intent." Id.

        The Rices alleged that the various lines, tanks, and wells ruptured releasing pollutants,



                                                  11
including saline substances. The word rupture intimates that the release was sudden. Therefore,

since the release was sudden, and we have already determined that the pollution was the result of

an accident, the Rices alleged that the release of the pollutants was sudden and accidental.

       2.13    The Saline Clause obligates the Appellants to defend Harken against suits
               that allege property damage caused by saline substances.

       The Parties agree that "Supplemental Exclusion Clause #11–Seepage, Pollution and

Contamination" eliminates the limited duty the Appellants have to defend or indemnify Harken

against a suit alleging damages caused solely by pollutants, which would include saline substances,

regardless of whether the damage is sudden and accidental. The Parties, however, disagree as to

the effects of the "Seepage and Pollution Endorsement" (hereinafter "S&P Endorsement") and the

"Saline Substances Contamination Hazard Clause" (hereinafter "Saline Clause").

       Harken maintains that the S&P Endorsement reinstitutes the Appellants' duty to indemnify

it for damage caused by pollutants, which would include saline substances and that the Saline

Clause reinstitutes the Appellants' duty to defend Harken in actions that allege damage caused by

saline substances. Thus, according to Harken, the Appellants have a duty to defend it against an

action that alleges that the damages were caused by saline substances and have a duty to

indemnify it for the damages caused by pollutants, including saline substances.

       On the other hand, the Appellants contend that the S&P Endorsement reinstitutes the duty

to indemnify Harken for damage caused by pollutants, but not including saline substances. The

Appellants, further, assert that the Saline Clause defines pollutants in the S&P Endorsement to

include saline substances, though pollution, pollutants, or polluting appears nowhere in it, and

merely extends the existing duty to indemnify Harken for damage caused by saline substances.



                                                 12
Thus, according to the Appellants, if they have a duty, it is solely a duty to indemnify Harken for

damage caused by pollutants, which only by virtue of the Saline Clause, includes saline

substances.

       The policy can reasonably be read to support both the Appellants' and Harken's

interpretation of the S&P Endorsement and the Saline Clause. "If multiple interpretations [of the

policy] are reasonable, [we] must construe the [policy] against the insurer." St. Paul Fire &

Marine Ins. v. Green Tree Corp., 249 F.3d 389, 392 (5th Cir. 2001) (citation omitted); see

Barrnet, 723 S.W.2d at 666; Glover v. National Ins. Underwriters, 545 S.W.2d 755, 761

(Tex.1977). Therefore, we adopt Harken's interpretation and hold that the Saline Clause

reinstitutes the Appellant's duty to defend Harken against actions that allege an occurrence and

damage caused by the sudden and accidental release of saline substances.

       2.14    The property damage alleged occurred during the Policies' period.

       The Policies state that the Appellants will defend Harken against a suit seeking damages

for injury to tangible property if the injury "occurs during the policy period." The Appellants

contend the property damage that the Rices alleged did not occur during either the

Sphere Policy period or the Commercial Policy period. The only relevant reference in the

complaint and petition that expressly refers to a date states:

       Harken's wrongful conduct is not an isolated incident or a one-time occurrence. A
       continuous succession of oil leaks and releases has resulted from Harken 's . . .
       negligence, and wrongful conduct, including the use of inadequate equipment without
       adequate monitoring. Releases and discharges have occurred at least 53 times,
       including occasions after Harken received notice from D. E. Rice in February 1997,
       after Harken received notice from the Trust's attorney on July 21, 1997, and after the




                                                 13
        Trust filed this lawsuit.6

        The Commercial Policy insured Harken from October 1, 1996 through October 1, 1997.

A fair reading of the passage above suggests that at least some of the property damage that the

Rices alleged occurred between February 1997 and July 1997. Therefore, the Rices alleged

property damage that occurred during the Commercial Policy period.

        The Sphere Policy insured Harken from October 1, 1995 through October 1, 1996. The

complaint and petition are devoid of any express allegation that property damage occurred during

the Sphere Policy period. This, however, does not end our inquiry.

        The phrase "continuous succession of oil leaks and releases [which] has resulted from

Harken's violations . . . at least 53 times, including occasions after . . . February 1997" alleges that

Harken caused the property damage and presumes that at least some of that property damage, if

not most, occurred before February 1997. In order for Harken to have caused the property

damage, it must have been operating on the Ranch. In order for Harken to have been operating

on the Ranch, it would have had to have a lease. Sphere does not dispute that Harken purchased

the Lease from Momentum Operating Company, Inc., on December 15, 1995, but it contends that

we may not consider when Harken purchased the Lease because that date is not in the complaint,

petition, or Sphere Policy.

        In Western Heritage Ins. Co. v. River Entm't., a panel of this Court held that under Texas

Law "when the petition does not contain sufficient facts to enable the court to determine if

coverage exists, it is proper to look to extrinsic evidence in order to adequately address the issue."


        6
         There is another reference date in the complaint, "[i]n 1996, the Trust granted a pipeline
easement to Harken." Harken, however, did not raise this factual issue before the Dallas Court.
Thus, it is waived.

                                                  14
998 F.2d 311, 313-15 (5th Cir. 1993), citing State Farm Fire & Cas. Co. v. Wade, 827 S.W.2d

448, 452-53 (Tex.App.–Corpus Christi 1992, writ denied). Thus, we can consider when Harken

obtained the Lease. By doing so, it is fair conclude that the damage that the Rices alleged

occurred during the Sphere Policy's period. Since the Rices alleged an occurrence and property

damage caused by the sudden and accidental release of saline substance during the Policies'

periods, the Appellants have a duty to defend Harken against the Lawsuits.

       2.2     The Dallas Court's award of the Lawsuits' defense costs was not error.

        Sphere contends that the Dallas Court awarded Harken "unreasonable" defense costs in

the Federal Lawsuit and should not have awarded Harken defense costs in the State Lawsuit.

Commercial does not appeal the Dallas Court's award of the Lawsuits' defense cost.

       We review all issues of law with respect to a trial court's determination of damages de

novo. Boehms v. Crowell, 139 F.3d 452, 459 (5th Cir. 1998). Absent an error of law, however,

we review a trial court's award of compensatory damages, in the instant case the award of defense

cost in the Lawsuits, a question of fact, for clear error. Id.

       With respect to the award of the Federal Lawsuit's defense costs, Sphere argues that they

are too high and that there is not sufficient documentation to justify the award. Sphere argues

that labels such as "Legal Research" without an explanation of how it relates to the case is

insufficient. In light of the deferential standard of review, the award should not be disturbed.

       With respect to the defense cost awarded for the State Lawsuit, the Dallas Court awarded

them sua sponte. Harken neither expressly amended its pleadings or its motion for summary

judgment to include the State Lawsuit. Harken merely attached the State Lawsuit's petition and

asked the court to enter a judgment that the Appellants had a duty to defend it in both Lawsuits.


                                                  15
In essence, the Dallas Court granted summary judgment sua sponte in favor of Harken on the

duty to defend the State Lawsuit and awarded damages. Thus, triggering de novo review.

       Federal District Courts are "empowered to enter summary judgment sua sponte,"

Geraghty and Miller, Inc. v. Conoco Inc., 234 F.3d 917, 923 (5th Cir. 2001), "so long as the

losing party has ten days notice to come forward with all of its evidence in opposition to the

motion." Love v. National Medical Enterprises, 230 F.3d 765, 770-71 (5th Cir. 2000).

       The State Lawsuit's original petition and the Federal Lawsuit's second amended complaint

are virtually identical. Harken attached the State Lawsuit's original petition to its motion for entry

of judgment. On March 9, 2000, Harken filed the motion. Sphere in its response, argued that the

Dallas Court should not include the State Lawsuit's defense costs in the court's final judgment, but

did not ask for an extension or a severance. On April 14, 2000, more than one month later, the

Dallas Court entered its final judgment and awarded Harken, as damages, the Lawsuits' defense

costs. Sphere had more than ten days to come forward with all of its evidence, it did not ask for

an extension or severance, and made arguments against awarding the State Lawsuit's defense

costs. For these reasons and the reasons articulated in Section 2.1 supra, the award of the State

Lawsuit's defense costs was proper.

       2.3     The Dallas Court's use of a 10% interest rate to calculate prejudgment
               interest was not error.

       The Appellants contend that the Dallas Court erroneously used a 10% interest rate rather

than a 6% interest rate when it calculated prejudgment interest. We review the award of

prejudgment interest for an abuse of discretion. Liberty Mut. Fire. Ins. Co. v. Canal Ins. Co.,

177 F.3d 326, 339 (5th Cir. 1999).



                                                 16
       6% is the appropriate prejudgment interest rate when the parties have unambiguously and

expressly established the amount owed under a contract, in the contract. TEX. FIN. CODE. ANN. §

302.002 (Vernon 2000). 10% is the appropriate prejudgment interest rate when the parties have

not unambiguously and expressly established the amount owed under a contract, in the contract.

TEX. FIN. CODE. ANN. § 302.003 (Vernon 2000). Harken and the Appellants did not

unambiguously and expressly establish the amount owed under the Policies, in the Policies.

Therefore, the use of the 10% interest rate was appropriate.

3.     Conclusion.

       Based on the foregoing, we Affirm the Appellants' duty to defend Harken, the award of

defense costs, and the use of the 10% interest rate to calculate pre-judgment interest.7




       7
        Any issue not expressly addressed in this opinion was considered, but deemed to be
without merit.

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